Inside the effort to overturn the legislature's controversial tax reform bill

By Zak Sonntag | [email protected]

On an unseasonably warm day last December, the Utah legislature met for a day-long special session to pass the most comprehensive tax-reform bill the state has seen in generations, a package certain to affect every taxpayer in the state. 

The bill, SB 2001, passed with a robust margin on the strength of its promise to lower state taxpayers’ burden by up to $160 million. 

Six days later the governor signed it into law, and that’s a good thing, right? Who doesn’t like a tax break?

Well, it turns out tax cuts can be deceptive, because the devil, per usual, is in the details. When particulars emerged, communities became angered by the bill’s new taxes on previously exempt services, along with its diminishment in the percentage of earmarked funding for education and, most contentiously, the increase in sales tax on food.

“The biggest problem is the regressive nature of taxing food. That might not impact upper and middle class people, but for those who are really struggling to make it this will be a big burden,” said State House Representative Carol Spackman Moss, who represents the cities of Holladay and Murray and voted in the minority against the bill.

However, the food tax is far from the only issue of concern for the Utahns who showed up in droves to sign a referendum petition that will give citizens a chance to vote to revoke the bill in the coming November elections.

The volunteer-based group Utah 2019 Tax Referendum has lead the referendum effort and raced to gather the requisite number of signatures before the January deadline. Though slow to start, the signature effort grew with stunning speed after Harmons and Associated Foods teamed up with organizers and allowed petitioners to table at their locations across the state.

“We knew we’d need the support of the food retailers, and we figured we would. But I went to Whole Foods, and they said no. I went to Smith’s, and they said no. I wasn’t sure if we’d succeed. Finally, Harmons got on board and it was a game changer. That’s when things exploded and starting moving fast,” said Tena Rorh, a Granite School District educator and referendum volunteer. 

The fourth quarter ramp-up was critical to the petition’s success, as the timelines and pathways for direct democracy have narrowed after lawmakers passed a series of “ballot buster” bills in recent years meant to curtail the facility of citizen-led lawmaking efforts.

“Last legislative session they changed the number of days grassroots groups have to file a referendum and shortened the amount of time we’re allowed to gather signatures. We now have to file in seven days, and we have only 30 days get the necessary signatures,” said Lynne McKenna, a volunteer who has worked on other referendum efforts in the state.

“We had people saying, ‘You’ll need to spend at least a million bucks if your going to get enough signatures in time.’ They thought we’d have to pay signature gatherers. But we paid nobody. Everything was done gratis.”

In order to qualify for the ballot, the referendum advocates needed to gather 116,000 signatures, totaling at least 8% of active voters in 15 of the state’s 29 counties. According to the Utah 2019 Tax Referendum’s internal data, they surpassed the requirements, which will compel the state to postpone the bill’s implementation until after the official referendum vote.

A strange but vital aspect of the effort’s initial success is the odd makeup of its bedfellows, from lefties to libertarians and the moderates in between.

“What really got me willing to put in all the time was seeing such a broad spectrum of people from different political leanings coming together for it. It was intergenerational. It had people from different socioeconomic classes all joining in,” McKenna said.

The sweep of the organization’s appeal surprised many on Capitol Hill.

“This referendum grew organically. You can’t even really characterize it. Left? Right? Center? It’s all of it. It’s the public saying, ‘We don’t like this and we don’t like the way it was done,’” said Spackman Moss, currently the longest serving state House member, who signed the referendum herself. 

The effort underscores a growing divide between voters and their representatives, and serves to further worsen the legislature’s unflattering reputation as a super-majority out of touch with its constituencies.

“Utahns are getting fed up with their representatives because they don’t actually represent who they claim to,” said Chris Robertson, a Holladay resident and volunteer signature gatherer. 

“They held ‘hearings’ on this tax reform, but they didn’t hear anything because they totally ignored all the public’s concerns. Same thing when they butchered the citizen propositions last year,” Robertson said, referring to lawmakers’ 2019 alterations of citizen-sponsored propositions related to political redistricting, medical marijuana and health-care expansion.

But two can play that game, the organizers seem to be saying, because this time it’s the legislature’s work in the crosshairs of the popular vote.

“Our legislature has been tone deaf for too long. Maybe this will wake them up,” Robertson said.

Nonetheless, if successful, the referendum will only nullify the tax reform bill, leaving unaddressed serious structural problems in the Utah tax code.

Trouble in the tax code

The tax bill may be lacking, but the motivation for reform is pressing. Tax experts and economists agree that Utah’s tax code is outdated; its current framework was laid out in the 1960s to meet the needs of a society that bought American-made wears from brick-and-mortar store fronts. The nature of how we spend and what we buy has changed drastically. 

One of the biggest changes is the rise of the service economy. Traditionally, commerce has been dominated by the economy in durable goods, the touchable, tangible things you load into the back of your car. But for the last 30 years, the proportion of goods as a percentage of the state’s GDP has steadily declined. 

Meanwhile, the economy for services, like medical and legal services along with purchases like haircuts, has ascended and supplanted durables as the leading form of transaction. Because these services are largely untaxed, state’s revenue has not grown at pace with GDP.

The diminishing proportional sales tax revenue puts more reliance on income tax collections, which are generally more volatile and, in Utah’s case, less flexible, because of a constitutional earmark requiring all state income tax to be spent exclusively on education.

In 1977, sales taxes in Utah accounted for 42.7% of all tax collections. By 2016, that number dropped to 29.4%, and continues to fall, according to the Tax Foundation, a tax-policy research institution. This puts greater pressure on lawmakers to find other revenue streams, and there is speculation that they hope to abolish the education earmark to open up income tax revenue to meet other obligations.

Compounding this problem is demographic change. The number of elderly Utahns is growing, who spend greater proportions of their income on health care, which is mostly untaxed and generates little revenue for the state. 

However, with steady population growth and a sturdy economy, Utah has been able to handle its governing obligations without excessive struggle. But with a swelling student population and vast amounts of deteriorating infrastructure statewide, in addition to the inevitable recessions on the horizon, something’s got to give. 

Flies in the ointment

The most universally shared concern with the bill is the increase on the sales tax on food, which lifts from 1.75% to 4.85%. And while lawmakers have included “grocery tax credit” meant to offset the burden, opponents complain that annual rebates are not smart ways to help struggling families.

“When you need to buy groceries every couple of days and every dollar counts, a one-a-year credit is not a desirable option for these households,” Spackman Moss said.

Furthermore, opponents point out, rebates threaten to skip those most in need, as many low-income Utahns don’t file taxes because their incomes are below the minimum threshold for mandatory filing.

“What people aren’t thinking about is the fact that many people living in poverty aren’t in the habit of filing taxes because they don’t make enough money and it’s only an extra effort and expense,” explained Tena Rohr, who worked as a special needs educator for 28 years. 

“And if you don’t file, then you can’t get a rebate, so the food tax may be ultra-regressive for a huge population of the state. I know because as an educator I used my personal money to buy students food. So many of them are underfed and hungry. Teachers do this all the time.”

For educators, the bill is doubly troubling for the fact that it lowers the income tax — which is the backbone of education funding in our state.

“When it comes to education funding, there’s is just too much distrust — how can you think otherwise when we’re 51st in the [per-pupil] spending, below Puerto Rico? Class sizes keep getting bigger, teachers are dissatisfied and leaving for other professions, they need more support and [SB 2001] creates too much uncertainty for them,” said Spackman Moss, who works on the education committee.

Additionally, the bill increases gasoline tax and adds a sales tax to a host of previously untaxed services. And at 200 pages, there is certainly something for everyone to dislike in the bill, a point that was understood at the outset. “When it comes to tax issues, no matter how we change things, someone’s going to be upset,” said the bill’s co-sponsor Rep. Francis Gibson during a tax-reform task force meeting over the summer.

So where does this leave lawmakers and reformists eager to rebalance our state’s off-kilter tax code? With the legislative session now underway, we might see a plan B soon.

“The legislature still has 45 days to try to get enough people to remove their signatures from the petition. And I find that irritating because they only give us 30 days to collect them,” McKenna said. 

Editor's Note: Utah legislators have announced their intention to repeal the tax bill during the legislative session.