Governor Gary Herbert joined Doug Wright on Thursday to answer questions from listeners who called into the monthly “Let Me Speak to the Governor.”
Gov. Herbert opened the monthly presser by stating that efforts to reform the tax law is due to changes in the economy, particularly due to changes to sources of revenue for the state.
Herbert says changes in the economy can be seen in sales tax revenue. He says in the past 70 percent of Utah’s budget came from sales tax. Now, it’s 40 percent.
Tax reform should also address management of the general fund and the user fund, he says.
The governor uses education as an example to explain the challenge.
“For example, over the last decade on average, we’ve contributed from the general fund 46 percent of the cost for higher education,” Herbert said. “Today, we’re only contributing about four percent out of the general fund for higher education, taking away dollars that really have been traditionally going into public education. If that’s not adjusted, public education will, in fact, receive fewer dollars.”
Herbert states that tax reformation is necessary to keep Utah’s economy strong and growing.
“We need to keep modernization of tax at the front and center so that over the next decade and generation we will continue to have a growing, expanding economy,” Herbert said. “Tax modernization will help us to make sure that is going to happen.”
The Governor takes the public’s questions
The first question for the governor was about possible taxation on services such as financial consulting and taxes on retirement.
Herbert responded that the only fair way to begin the discussion about tax reform is to put everything on the table. The governor said taxes on the services that the caller mentioned are yet to be determined. The governor’s plan is not to increase residents’ tax burden. Instead, he says, the tax base would be broadened by taxing new areas.
“By definition, broadening the base means we are going to be taxing areas that have not been taxed in the past. That’s how you broaden the base. But again, emphasizing lowering the rate so that, in fact, people will have less tax obligation and a more fair and simple system than we currently have today.”
He says under a current proposal the sales tax rate would be lowered to about 3.1 percent. The current state sales tax is 4.7 percent.
Under this plan, there would be net reduction of costs even though certain costs would go up.
Another caller asked the governor about nuclear power in Utah.
He highlighted scientific advancements that have helped to improve safety in regard to nuclear reactors.
“Nuclear power has come a long ways, whether they be small module reactors, now which is an improvement over the larger modules we’ve had in the past, making them more economical and more safe,” Herbert said. “Nuclear power is used in many parts of the world, including in the United States.”
Herbert says that Utah has a plan for energy. He says renewable energy like nuclear power is a part of that plan.
“We have a ten-year plan on energy development from the state of Utah that now other states are copying, making their own modifications for their own state,” Herbert said. “But, we have said this: Based on the economics of it, what the reality of the world and energy production and demand, that the base load for energy over this next generation is going to come from carbon-based fuels, and or nuclear power or a combination. That’s just the reality.
“New technology is making it a very viable option for producing power. That we do have some radioactive materials to dispose of at the end, nuclear-spent rods, which can be stored safely, but it is such a small component of it and the power that is being produced is absolutely clean. So, again, that balance is going to be our future and I think it’s something we need to consider and I think this legislation is designed to allow us to take a look at nuclear power in an environmentally sensitive way.”
The governor responded to a question asking why Utah is one of only thirteen states that taxes social security.
“We are concerned about taxing not only social security but we have higher income people that come to Utah and have a higher tax obligation than what they would have in another state,” said Herbert. “We have veterans that come to Utah and retire and have a higher tax obligation that we have in Utah. All those things need to considered as an overall tax policy.”
The governor says when it comes to tax policy the state can’t “set it and forget it” because the changing marketplace requires a changing tax policy, what he calls “tax reform and tax modernization.”
Herbert points out that while Utah does tax social security, Utah doesn’t have a gross receipts tax like others states do, such as Wyoming. He says a gross receipts tax makes other states less business-friendly than Utah.
The governor says a proposed .075 percent transfer tax for those buying a home is a way to get everyone to contribute in a fair way. Under this transfer tax, purchasing $300,000 house would include a tax of $275 that would be part of the closing costs.
The governor says unnecessary impact fees make home ownership too expensive. Doing away with fees like home construction permits would make housing more affordable, he says.
The governor says it is a complex issue for answering questions about affordability for housing and services.
He says it is easy to understand that if we broaden the tax base and lower the tax rate the people who will pay more under this plan are those who weren’t paying their fair share.
“We have to find ways to take money out of the market,” Herbert said. “That’s called taxation.”
Herbert says, here in Utah, we are very judicious to make sure that we spend the money carefully.
“All of the core functions of state government come out of the general fund, which is funded by sales tax,” Herbert said. “Income tax goes to one thing and one thing only: education. So if you want Medicaid funding, if you want transportation, roads, if you want to have health and human services and all iterations, that comes out of sales tax.
“That base is narrowing. We’ve got to find a way to equalize this on the general fund side. And, at the end of the day, if we do that so everyone pays their fair share it will, in fact, lower the cost of your obligation to pay taxes and next year will be less than what you’ve paid this year.”
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