Utah Gov. Gary Herbert on Thursday proposed adding new sales taxes on services while cutting the overall tax rate, part of a reform effort he said will be a “heavy lift” but is essential for the state’s economic future.
Herbert outlined the idea as he introduced his proposed $19 billion state budget, which reflects a 13 percent increase over last year’s spending plan.
The governor wants to lower the overall sales tax rate from 4.85 percent to less than 4 percent, which could save taxpayers a total of about $200 million. Possible areas for new taxes include services such as limousine rentals, haircuts, pest control and plastic surgery.
The plan would ease the tax burden on the middle and lower classes while shoring up the state’s shrinking sales-tax base, he said.
“We’ve got to address it, we can’t just put our heads in the sand,” he said.
State revenue is up overall, but the portion of the economy that generates sales tax has shrunk from 70 percent in the 1980s to less than 40 percent today. The drop is largely because the state, like the rest of the country, is shifting from a goods-based economy to a service-based economy, Herbert said.
In Utah, many services aren’t taxed.
“My belief is, truly, if we broaden our base and lower the rate, everyone pays less taxes,” he said.
Lawmakers will meet in January to consider a budget for submission to Herbert.
Incoming Utah House Speaker Brad Wilson said he agrees there’s a structural problem with the tax system, but exactly how to address it remains undetermined.
Here are a few highlights of the budget plan:
The governor has long advocated for money for education. Next year, he wants to add another $445 million, including money for school counselors to help deal with mental health issues and $30 million for teacher bonuses. He’s also proposing a new $50 million scholarship fund for low-income college students.
About $1 billion is expected to come from the federal government to fund full Medicaid expansion, which was passed by Utah voters through a ballot measure that includes a tax increase. Some lawmakers worry it may not cover the entire cost of the expansion.
AIR QUALITY AND PUBLIC LANDS
Herbert wants to spend $100 million on improving air quality in Utah, where geographic factors can trap fog in valleys in winter, at times creating some of the dirtiest air in the country. He wants to see emissions decrease by 25 percent by the year 2025. Herbert also wants to spend $20 million to buy land at rugged Tabby Mountain to create Utah’s first state forest.