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Raising taxes

State budget needs a boost?

November 08, 2009

Tribune Editorial, Salt Lake Tribune

The Great Recession may be over, according to a formula used by economists who define such things. But for Utah and most other states, the light at the end of the tunnel is barely a flicker.

When the Legislature convenes in January, Job 1 will be figuring out how to deal with a revenue shortfall next year that could reach $850 million. That's despite nearly $1 billion in budget cuts that lawmakers made this year. Total spending in the general and education funds is $4.5 billion. Already, based on revenue shortfall estimates for the current fiscal year, legislators are warning state agencies that more cuts are on the way and that belts must be pulled even tighter.

That is prudent. But the hard truth is that the state can only cut so much without doing long-lasting damage to future economic growth and the well-being of Utah citizens. So, what's the answer? When the expenditure side of the balance sheet is cut to the bone, the only alternative is the one politicians, particularly in Utah, will do almost anything to avoid: raise taxes.

We know that solution is anathema to conservatives. We know that during a recession it's particularly difficult to wring more money from businesses and individuals who are already reeling. But we offer public education and social services as evidence that, after a certain point, budget cuts become more onerous than higher taxes.

Despite the recession, despite less money for schools, new students just keep coming. The State Office of Education announced last week that public school enrollment jumped by more than 12,000 students, or 2.2 percent, this fall. That many more are expected next year. The Legislature this year cut funding for public schools 5.2 percent. Utah already spends less per pupil than any other state, $4,000 less than the national average and $1,000 less than the next lowest-spending state, Idaho.

Any further cuts to public education will mean even larger class sizes (Utah already has the nation's largest) and more difficulty reducing the state's shameful achievement gap between whites and minority students. And that gap, if not closed, puts Utah's future at risk. Because our children are our future -- the taxpayers, innovators and entrepreneurs we will rely on to keep this state and our country's economy afloat.

Spending on social services, including Medicaid and general assistance, must also be maintained at a reasonable level because the success of families contributes to children's success in school. These human services are so interrelated that sacrificing one imperils all others. And if public ed were held harmless, other state services would be decimated.

But how to bolster the state's coffers without curtailing business recovery or burdening the most vulnerable? Here is a list possibilities; any of them could be adopted on a temporary basis, until the economy and state revenues rebound.

» Restore for now the sales tax on food. This is a regressive tax because poor people spend a larger percentage of their income on food, although higher-income families spend a larger amount. The tax should be accompanied by a refundable earned income tax credit to help compensate low-income families. It would boost revenue by $147 million per year.

» Raise taxes on tobacco. House Bill 219, which would have set Utah's tax at the average of 44 states that impose the tax, is estimated to glean $31 million per year. This is another tax that would hit low-income folks harder, but it also would encourage smokers to quit, discourage young people from starting and reduce health costs.

» Adopt a severance tax on coal and kill exemptions on oil, natural gas, and gravel and sand mining. Coal producers should be charged the same extraction fee as other companies. That would raise about $12 million a year. Eliminating the severance-tax exemptions enjoyed by oil and natural gas companies could bring in $160 million.

Those seem to us to be the low-hanging fruit. But even if the Legislature were to adopt all three, the additional $350 million would not be nearly enough to maintain vital services. Other measures are needed:

» Reduce the income tax breaks given to large families, because Utah's highest-of-all birth rate is the direct cause of large class sizes and low per-pupil spending. This equitable change would bring in hundreds of millions of dollars.

» Impose a temporary surtax on the income of Utah's wealthiest residents. A 1 percentage point bump (the modified flat tax rate is 5 percent) on those making more than $250,000 per year would bring in about $143 million per year.

» Expand the tax base by taxing such service providers as accountants and lawyers, as recommended by former Gov. Olene Walker's tax reform commission. Doing so would add about $880 million to the state treasury.

» Raise the fuel tax. A 10-cent-per-gallon hike would generate $100 million in new revenue and improve air quality by encouraging fuel conservation.

Raising taxes in a recession may seem onerous. But if legislators do not act boldly to increase revenue, the values we Utahns hold dear, including the present and future well-being of our children, will be in peril.

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Source: http://www.sltrib.com/ci_13732217?IADID=Search-www.sltrib.com-www.sltrib.com