Monday, August 31, 2009

Will Your State Taxes Go Up?

Utah Rep. Craig Frank and Utah Sen. Steve Urquhart have interesting posts addressing the question of how Utah should deal with its budget shortfall during the next legislative session. Both are opposed to broad tax increases. Frank opposes any targeted tax, but Urquhart says that an increased tobacco tax “is a fait accompli.” He suggests that alcohol taxes could also be raised.

Rep. Frank writes, “A fixed tax burden shared among a larger taxable population lowers the tax burden for everyone. Logical. “Target taxing” doesn’t accomplish this principle.”

Sen. Urquhart explains that tobacco and alcohol “correlate with significant costs to the State (e.g., Medicaid costs to treat cancer and people who have been injured by drunk drivers).” Rep. John Dougall (or someone posing as him) posts the following response:
“Regarding Medicaid, DOH staff report that the state spends approximately $20M on any and all health treatments that might have any likely relationship with smoking. Also, the state collects over $50M in tobacco taxes, which more that (sic) covers the $20M and then some.”
The implication is that increasing the tobacco tax is simply gouging a politically disadvantaged (and addicted) group. (Only about 11% of Utahans smoke, while a large number of citizens oppose smoking on religious grounds.) In response to another comment, Sen. Urquhart writes, “The Legislature does not believe that alcohol or cigarette taxes equal the societal costs (as Rep. Dougall points out); that's why I used the word "correlate".”

In other words, Sen. Urquhart asserts that Medicare expenditures are only the tip of the iceberg when it comes to the costs tobacco and alcohol usage imposes on the state. Hmmm… I’d sure like to see some valid figures on that.

I don’t doubt that alcohol and tobacco use cost the state. It is possible that taxes on these products are analogous to a usage fee. But I’d like to see something more empirical than a belief by the state legislature. Besides, don’t people engage in lots of activities that ultimately impose costs on the state, but for which no special taxes are imposed?

Sen. Urquhart says that Gov. Gary Herbert appears to be gearing up to oppose general tax increases and may be signaling “that he is willing to take a hard look at state expenditures.” I don’t know if Sen. Urquhart is engaging in wishful thinking or not, but it would make political sense for Gov. Herbert to oppose broad tax increases.

The voters don’t know Gov. Herbert very well yet. The 2010 legislative session will be his best chance to audition for the job he now holds. To keep the job, he will need to prevail in a special election in November 2010. Then he will need to keep the voters happy if he wishes to win again just two years later in the 2012 general election.

Utah voters tend not to like tax increases beyond the Word of Wisdom sin taxes and targeted fees. Bear in mind that it’s not just Utah voters in general that Gov. Herbert will need to impress. He first needs to woo the grass roots folks at the state GOP convention. This group really dislikes tax increases. Gov. Herbert can expect a tough challenge if his response to his first budget shortfall is to raise taxes.

If I were inclined to wager, I’d bet that Utah won’t see serious tax increases in the 2010 legislative session. Given that such increases would harm Gov. Herbert’s chances in the 2010 election, and given the legislative vote dynamic explained by Sen. Urquhart, the more likely approach will be the tightening of the expenditure side of the budget.

I very much appreciate this observation by Sen. Urquhart:
“A reality of government – sad but very true – is that expenditures aren’t watched closely enough during “up” years. (Utah does better than most states, but we still have room to improve). If expenditures then aren’t reined in during “down” years, the government-as-servant/citizen-as-master relationship is turned on its head. The “needs” of government become a significant burden on the people (e.g., California and the federal government).”
I was among the few lonely voices that echoed this sentiment back during the heyday of Utah’s billion dollar budget surpluses. Rather than anticipating the need for austerity, our politicians happily ‘invested’ (that’s a term of politician-speak that translates to ‘increased government spending’ in English) the repeated surpluses.

I have complete confidence that if the economy were to once again bubble, our state politicians would climb all over each other to ‘invest’ whatever they could get their hands on. And the ‘conservative’ citizens of this state would be mostly pleased to watch them do it. Why waste a good bubble?

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