Taxation

Constitutional Earmarking of Income Tax

From a purely public policy standpoint, we acknowledge that there are generally legitimate arguments against earmarking tax dollars. As a general principle, policymakers should be able to utilize tax revenues where needed.

The constitutional restriction may well have artificially limited the legislative ability to address certain funding needs in the past. These concerns prompted the 1996 constitutional amendment that allowed higher education to utilize income tax. We believe that this UEA-supported constitutional change provided any needed flexibility.

Other important considerations are associated with the Article XIII, Section 12 restriction currently found in the Utah State Constitution.

First, the very origins of this provision involve keeping faith with the citizens of Utah . The constitutional restriction is not some archaic provision incorporated at statehood for which we can find no idea of its origin. Instead, a constitutional requirement that income tax be required to support public education was a condition of the state when it initially imposed the income tax.

The origins of this provision and the promise made to Utah voters impose an affirmative obligation on those seeking to change the provision to justify that change. The burden of proof does not rest with those seeking to retain it.

Secondly, concerns over why this proposal is being considered also raise questions about the agenda. Concepts such as shifting education funding away from property tax to sales tax or allowing significant diversions of income tax revenue to non-education areas create natural anxiety within the public education community. We have not been presented with a compelling argument for a constitutional change to date.

Lastly, we believe that the constitutional provision is viewed by many as an affirmative statement of public support for education.

Changing the constitution would require “trusting the legislature.” As a practical consideration, we believe such a constitutional amendment can only be passed through the legislature and approved by the public with the strong support of the public education community. Obtaining that support from Utah teachers at this time would be very difficult.

Property Tax

The property tax has been identified as the most reliable and stable source of revenue. The role of property tax in education funding has been dramatically diminished over the last decade. What used to comprise about 25% of public education funding has now been reduced to 16%. The state minimum education tax levy has been cut in half. Most troublesome is that the current system forces continued reductions in that state rate and further exacerbates the situation. There is a need to incorporate some type of inflationary adjustment as part of the state rate-setting process. A similar situation exists at the local level with the impact of truth-in-taxation.

RDA Reform

We have long been concerned with the erosion of property tax revenues associated with questionable economic development projects. Increased scrutiny about future projects is entirely appropriate. We encourage the legislature to move forward with meaningful reform and support the proposal to allow public education to choose to participate in future RDA projects.

Corporate Income Tax

We opposed legislative efforts last session to phase out the corporate income tax. We were concerned that some legislators were willing to look at this one aspect with a $200 million price tag without discussing revenue alternatives. We remain opposed to taking a “leap of faith” of this magnitude. Even more modest changes, such as using a single sales factor apportionment methodology, carry significant fiscal impacts and merit a plan to replace the lost revenue.