Toying With Taxes 

Lawmakers consider pulling $138 million out of education.

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Gov. Gary Herbert, R-Utah, and House Speaker Greg Hughes, R-Draper, have touted the $75 million boost lawmakers gave to education in 2015. While it wasn't enough to pull Utah out of its worst-in-the-nation ranking on per-pupil spending, it was the biggest bump Utah schools had seen in almost a decade. But now some legislators are considering a bill that would cut $138 million annually from the education fund.

In an effort to attract more jobs to Utah, Rep. John Knotwell, R-Herriman, has proposed a bill that could cut the taxes of some of the largest corporations in Utah by more than 90 percent. House Bill 61 would allow companies to use a "single sales factor," meaning instead of paying taxes on the formula from the current three factors—sales tax, income tax and property tax—they can pick just one to pay taxes on. So a corporation that primarily exports its products to other states (such as Kennecott, Adobe, or many manufacturers) could choose to only pay taxes on what it sells in-state, which could mean some of the largest companies might have a tax rate so low, they end up paying the same amount of money an individual does.

"Our competitive states around us, like Nevada, South Dakota and Wyoming—which have no income tax at all—have a tendency to draw jobs [away from Utah]. We have the opportunity right now to be competitive," Knotwell says.

"We hear this idea a lot, that we have to match what any other state is offering or businesses won't come here. But it's dangerous to continue making tax policy based on speculation," House Minority Leader Brian King, D-Salt Lake City, says. "There are many states doing incredibly well economically that don't continually cut corporate taxes the way that we do. Just look at states like Washington and Oregon—that not only aren't low-tax states, but could even be considered high-tax states. While we hear a lot of speculation that this could create new jobs, I have yet to hear anyone provide any evidence that the potential benefits will outweigh the cost of so drastically cutting money from our schools."

King calls it "Milton Friedman and Grover Norquist-style economics," and says he agonizes over the fact that if proposals like Knotwell's become law, it means lower teacher pay and higher numbers of students per classroom.

Rep. Norm Thurston, R-Provo, says he has not seen Knotwell's bill yet, but that in general the House Republicans are conscious of those concerns and have discussed them in their private caucus meetings. "We do things all the time to the income tax, which goes 100 percent into education, without really thinking of the impact on education," Thurston says. "Right now there are 43 tax credits that people can get, and those tax credits reduce your income tax. All in all, it adds up to something like $600 million in taxes that could be going into education, but we choose not to because we want to do something else instead."

Thurston says that discussions around taxes and tax cuts are always difficult to balance, because "it pitches two sides of government against each other" as lawmakers try to weigh whether to try to provide incentives for business and the needs of schools to educate Utah's future workers. "It's the highest degree of difficulty in political decision-making," Thurston says. "Often, we pass these incentives, but then we forget about them, so they stay on the books, pulling away from education even though they might not be working."

Knotwell says he doesn't expect his bill to actually pass but that he is trying to start a conversation. "We probably can't afford to pull $138 million [out of education] this year," Knotwell says, "but the legislative process is a long one. If I can move the needle, then maybe we could scale it back by having [the tax break] apply to fewer industries, or maybe implement it over time so the impact isn't as great all at once."

"That's a dangerous game to play with education," King says. "What happens, if all of a sudden, the ideological hardliners decide that they're all going to support the bill and it becomes law? We just have to hope that one of the committee chairs or leadership recognize how damaging a policy like this would be and hold the bill back from getting a final vote."

But Knotwell says "This is certainly where I think we need to end up, whether it's this year, or in 10 or 20 years."

UPDATE: After Rep. Knotwell amended his bill to have the tax cut apply to less businesses, the House Revenue and Taxation Committee passed HB61 out of committee on Feb. 17 along party lines.

Editor's Note: In addition to covering state politics for City Weekly, Eric Ethington is communications director for Political Research Associates.

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