The Utah Taxpayers Association has just released its 2007 legislative scorecard. Click here to see how legislators voted on key tax issues.
Click here to see position papers on most of the bills on the 2007 scorecard.
This year, we supported most of the tax bills and officially opposed only one (Real Salt Lake soccer stadium subsidy).
To view scorecards from previous years, click on the following links
Last Sunday, Provo Mayor Lewis Billings wrote an op-ed in the Deseret Morning News extolling the virtues of iProvo. We would like to cover some points that Mayor Billings overlooked.
iProvo is losing money
Last year, iProvo lost nearly $1 million and is expected to lose about $2 million this year. Provo originally projected that they would need 10,000 subscribers to break even, but now that number is being ratcheted upward.
Of course, iProvo was supposed to make money.
iProvo competes with unfair tax advantage
Since iProvo is government owned, it is not subject to taxes. Unlike Qwest, Comcast, satellite providers, and wireless companies, iProvo does not pay federal and state corporate income taxes, local property taxes, and state/local sales taxes.
Defenders of government-owned telecommunications systems argue that companies that provide services over iProvo's network are subject to taxes. However, iProvo's infrastructure is tax exempt, and private sector competitors like Qwest, Comcast, and wireless companies have to pay taxes on their infrastructure. Payment of some taxes by iProvo providers does not negate iProvo's exemption from other taxes.
Recently, the Legislature partially addressed this issue by exempting certain telecommunications purchases from state and local sales taxes.
However, the bottom line is that iProvo competes directly against private sector companies but does not pay property taxes or corporate income taxes. Some may argue that non-payment of federal and state corporate income taxes is a moot point since iProvo is losing money. Nevertheless, iProvo's competitors are subject to federal and state corporate income taxes.
Does the airport analogy justify iProvo?
UTOPIA and iProvo supporters have used the airport analogy to justify government-owned telecommunications systems. Supporters argue that it would be unrealistic for each airline to build its own airport. Therefore, government builds an airport and charges airlines to use it.
That's not a bad analogy from a PR sound bite perspective, but the analogy is seriously flawed from a logical fiscal policy point of view. Prior to iProvo's and UTOPIA's creation, private sector companies had invested hundred of millions of dollars in Utah's telecommunications infrastructure, and cumulative total private sector investment now exceeds $1 billion. It's simply not fiscally responsible to walk away from this investment, which is subject to taxes and does not expose taxpayers to risk, in order to start something from scratch and expose taxpayers to financial risk.
The airport analogy could make sense if the private sector had not been willing to build telecommuncations infrastructure in the first place, but that has not been the case.
But haven't Qwest and Comcast have lowered their prices because of iProvo?
Qwest offers the same prices and service throughout its entire multi-state service area. Comcast offers certain short-term promotional pricing which proponents of government-owned telecommunications systems cite as proof that iProvo and UTOPIA are benefitting taxpayers. However, Comcast's long-term pricing is independent of whether the customer lives in a city with government-owned telecommunications system.
Last week, Republican Rep. Kay McIff submitted ten reasons why he is opposed to vouchers in a guest editorial in the Standard Examiner. Click here to see part 1 of our response to Rep. McIff.
Today, we respond to some other points Rep. McIff raised in his guest editorial.
"Point 5, Escape and abandon: First and foremost vouchers are vehicles to escape from schools deemed unacceptable . . ."
"Point 7, Stratification: The free market produces winners and losers . . . The result is enormous disparity."
Parents already "escape and abandon" public schools deemed "unacceptable" by moving into neighborhoods where public schools are deemed acceptable. Every morning as we leave our homes in suburban Salt Lake County, we pass by groups of middle class white children waiting for the school bus to take them to nearly all-white middle class public schools. When we arrive at our offices on Salt Lake City's west side, we see immigrant Latino and African children waiting for a school bus to take them to non-white low income schools.
Voucher opponents like to talk about the egalitarian nature of public schools, but very few institutions in America -- and Utah -- are more segregated than public elementary schools, and the disparity in school performance is enormous.
Voucher opponents cannot criticize Utah's voucher program on the grounds that it will cause stratification because this process has been occurring for decades within the public school system and nothing -- including busing and additional funding for schools in low-income areas -- has reversed this trend.
Moreover, since the voucher is means-tested, the bulk of voucher dollars will be going to low-income students, not high-income students. By giving financially viable education choices to low-income students, education stratification is reduced, not increased.
Coming soon, part three: Is competition a bad thing for education?
Last week, the Utah Taxpayers Association released a report detailing the federal, state, and local taxes paid by a median income Utah family consisting of two parents and three children. Click here to read the report and click here to read the Deseret Morning News article on the report.
Taxes consume 25.3% of a typical Utah family's income. This includes all direct taxes paid by the typical family as well as the employer-paid payroll taxes (which are counted in the income denominator as well as in the taxes numerator) but does not include taxes paid by businesses that are passed on to consumers in the form of higher prices, to employees in the form of reduced compensation, and to shareholders in the form of reduced share prices and dividends.
Some of the results may be surprising, particularly how much the typical 5-person, 3-child family pays in state and local sales taxes and how little (comparatively) the same family pays in federal income taxes.
Rep. Kay McIff (R) outlined ten reasons why he opposes vouchers in a guest editorial that appeared in yesterday's Standard Examiner. We'll be addressing these points (in no particular order) over the week, starting today.
In point number two, McIff argues that vouchers are a subsidy for private industry and compares vouchers to subsidizing golfers on private courses. This claim has several flaws.
- The existing public education system itself is a subsidy. Most families do not earn enough income to pay enough taxes to cover the cost of educating their children in public schools (and still have enough left over to cover the costs of other government services). The top 1% of taxpayers pay about 20% of all individual income taxes (this percentage fluctuates based on the state of the economy) and the top 10% pay about 50% of all income taxes. Public education was instituted so that high income families could subsidize the education of middle and lower income families.
- Private school vouchers are actually a smaller subsidy than the existing public school subsidy. On average, Utah will be spending $7,500 per student in 2008 (includes capital and debt service costs that government reports and newspapers exclude). The average voucher amount is expected to be about $1,900. That's why vouchers are a good deal for everyone, including those who do not have children and those whose children will continue to attend public schools. (Please click here to read our response to concerns about existing private school students getting vouchers.)
- Comparing private school vouchers to golf courses is truly apples and oranges. First, education is an entitlement enshrined in the state constitution and vouchers are a lower cost way to deliver this entitlement. Golf is not an entitlement (yes, we know some people would disagree with that). Besides, government shouldn't be in the golf course business anyway. This is something the taxpaying private sector can provide.
- While vouchers are a subsidy for low- and middle-income students who receive them, vouchers are not a subsidy for the private schools themselves. Government routinely contracts with the private sector to provide services. Food stamps, for example, are a subsidy for the low income families that receive them but are not a subsidy for the grocery stores that accept them. School districts contract with private companies to build facilities. These are not subsidies for privately owned construction companies because these companies are providing a service. The same is true for vouchers since private schools will be providing education services.
Finally, while McIff didn't mention this, a commonly used "subsidy" argument claims that vouchers are bad policy because government doesn't give vouchers to people who buy their own security systems. Again, this is an apples-and-oranges comparison because government is not currently imposing general taxes in order to have government employees install and monitor security systems for all residents. If government were currently taxing its citizens in order to provide security systems as a constitutional entitlement, then vouchers would make sense if the voucher amount were less than the amount the state was paying to provide this service on its own.
Please click here to read our response to concerns about existing private school students getting vouchers.
Many years ago, sales taxes were increased by 0.25% (actually 0.25 percentage points) along the Wasatch Front to pay for mass transit. This was called the first quarter. Then came the second quarter. A quarter of the second quarter in Salt Lake County is used for roads. As of this April, Salt Lake County taxpayers will start paying the third quarter. Like the second quarter, a portion of the third will be used for roads.
Now transportation planners are calling for fourth and fifth quarter sales tax increases for transit in the next twenty years.
Sales tax rates don't have to be increased to generate additional revenues. Sales tax revenues increase with population/wage growth and inflation.
According to the Utah State Tax Commission's FY2006 Annual Report, Utahns paid $23.8 million in public transit sales taxes in 1987. In 2006, Utahns paid $136.4 million in transit sales taxes, a portion of which (less than 10%) was used for roads. This is an annualized increase of 9.6%. In the past ten years, the annualized increase has been 10.1%, compared to annual combined inflation and population growth of about 5.5%. With the recently approved third quarter in Salt Lake County and second quarter in Utah County, the annualized increases will be even higher in future years.
Each quarter percentage point sales tax increase yields about $50 million in Salt Lake County, assuming that the additional transit tax increases are not imposed on unprepared food purchases.
When tax increases were originally proposed for mass transit, proponents claimed that increased transit spending would allow the state to slow the growth in highway expenditures. Has that happened? No, in fact just the opposite has happened. In FY2008, the state will be spending nearly $790 million in one-time and ongoing general fund dollars for roads, up from nearly zero in 1990, when gas taxes and other user fees covered the costs of transportation infrastructure. Despite the huge infusion of general fund dollars for transportation, the transportation lobby says even more is needed.
Some argue that general fund revenues are needed because the state has not increased gas taxes. Since the gas tax is a fixed amount per gallon, gas taxes need to be periodically increased to offset inflationary losses, unlike sales and income taxes which automatically increase with inflation and population/wage growth.
However, only a portion of the increased reliance on general funds for transportation can be explained by the state's reluctance to increase gas taxes. The nearly $790 million in general fund revenues for transportation would equate to a 56 cent per gallon gas tax increase which means the gas tax rate would be triple what it is now. If the state gas tax rate were adjusted for inflation since the last gas tax increase, the gas tax rate would be about 10 cents per gallon higher, not 56 cents per gallon higher.
What are the solutions? We've proposed three ideas: increased funding for transportation corridor preservation, combined prioritization of roads and rails projects, and congestion pricing. Click [here] to read about congestion pricing.
We have an additional proposal, which we'll discuss within the next couple of weeks.
The Utah Taxpayers Association will be hosting its annual Utah Taxes Now conference on May 4th at the Little America Hotel in downtown SLC.
The conference will be moderated by KUTV's Rod Decker. We've got an impressive line up of speakers including
Gov. Jon Huntsman, Jr.
Senate President John Valentine
House Speaker Greg Curtis
David Horner, US Department of Transportation
Sen. Mike Dmitrich
Sen. Wayne Niederhauser
Sen. Sheldon Killpack
Sen. Howard Stephenson
Rep. Ronda Menlove
Rep. Merlynn Newbold
Rep. Wayne Harper
Rep. John Dougall
Rep. Mike Noel
Rep. Greg Hughes
Tax Commissioner Bruce Johnson
Tax Commissioner D'Arcy Dixon Pignanelli
Tax Commissioner Marc Johnson
Superintendent Patti Harrington
Several tax practitioners, tax lawyers, and industry representatives
Topics include the following
For more details including registration information, click here
Tax Freedom Day will arrive on April 30th this year, according to the Tax Foundation, two days later than last year. On a state-by-state basis, Tax Freedom Day arrives on different days. In Utah, for example, Tax Freedom Day arrives on April 22nd, a couple days earlier than the nation as a whole.
Tax Freedom Day is a broad economic measure that accounts for the amount of federal, state, and local taxes paid as a percent of national income. In 2007, Americans will earn $12.199 trillion in income and pay $3.988 trillion in taxes, or 32.7% of national income. Multiplying 32.7% by the number of days in a year equals 120 days. April 30th is the 120th day of the year.
The Tax Freedom Day calculation includes business taxes that are hidden but are passed on to consumers in the form of higher prices, employees in the form of lower salaries and benefits, and shareholders in the form of lower dividends and stock prices.
Why does Tax Freedom Day arrive earlier in Utah?
Utah’s federal income tax burden is lower than the national average, due largely to larger families and lower average annual wages. Larger families mean more federal personal exemptions and child tax credits. In fact, many middle-income Utah families pay little or no federal income tax.
Utah’s average annual wage is about 18% below the national average (this is an average wage, not a per capita wage which would include children). Since the federal income tax is steeply progressive, Utah’s lower wages means that Utahns pay lower federal income taxes compared to the national average.
Several legislators argue that Utah’s lower federal tax burden justifies a higher state and local tax burden. However, every level of government should be held separately accountable for the taxes it imposes. For example, a city should not argue that it is justified in imposing higher taxes than other cities simply because the county tax rate is lower than other counties.
Responding to criticism from the Left
Some groups have criticized the Tax Foundation’s Tax Freedom Day calculation. They argue that Tax Freedom Day does not measure the tax burden of the average or median income American. The Tax Foundation responds that Tax Freedom Day is a broad measure that accounts for tax burden across the entire economy and was never intended to measure the tax burden of the “average” American.
Some groups maintain that Tax Freedom Day overstates America’s tax burden because taxes on capital gains are included in the numerator (taxes) but capital gains income is excluded in the denominator. The Tax Foundation responds that including capital gains income would impact Tax Freedom Day calculations by roughly one percent.
To read the Tax Foundation’s complete response to its critics click here.
