Originally published in Daily Herald.

Momentum is building toward state tax reform this year. The governor wants to cut sales taxes but expand the tax to more services, while influential voices in the Legislature would like to see income taxes cut instead. Both arguments have some merit.
However, the bigger opportunity on tax reform is to position Utah to lead the nation in both good governance and growth for the long term – whether in good or bad economic times.

Utah has a genuine problem with its sales tax. Compared with the past, more and more of Utahns’ money is spent on untaxed services provided by businesses, such as health care. Between 1985 and 2015, the proportion of money spent by Utah households on things not subject to sales tax grew from 49 percent to 59 percent, according to the Gardner Institute. This means the sales tax is a diminishing source of revenue for the state budget.

From one perspective, that may not be all bad. When government revenue sources diminish over time, it creates natural pressure to find efficiencies in government operations.

At some point, however, this trend will force tax increases upon policymakers in order to fulfill legitimate government functions. In recent years, for example, Utah’s backlog of road maintenance forced a fix and an increase to Utah’s gas tax. It is arguably better to fix a diminishing revenue problem before it reaches such a critical stage that there is no other choice. That is exactly what is being contemplated with Utah’s sales tax policy, and Utah policymakers are right to tackle this problem.

But what should guide the debate about the details of fixing and cutting taxes? Should it be a preference for one tax over another? Should it be a desired tax cut amount?

The common good would best be served if tax reform policies were decided by a long-term focus on positioning Utah to continue as a national leader in economic performance and good governance.

Of course, this begins with the political principle that tax dollars belong to taxpayers, not to the government.

Based on this principle and the fact that taxpayers have seen policy changes increase their property taxes, gas taxes and sales taxes in recent years, a significant reduction in tax revenue as part of the fix to the sales tax problem seems both reasonable and prudent. But fixing the sales tax and returning tax dollars to taxpayers in a way that positions Utah to lead over the long term will be a challenge.

It will require that tax cuts reach working Utahns, not only upper-income households, so people at all income levels can truly experience how the free market secures their well-being. Enacting a state earned income tax credit is one example of tax reform that could work well here.

It will also require that tax reform promote and support strong families, which are the motivating force and social engine behind Utahns’ industrious work ethic and entrepreneurial spirit. An expansion of the state child tax credit, or an additional credit if the parents of children are married, would illustrate how Utahns understand and apply the connection between strong families and a healthy economy.

Finally, it will require that tax cuts not undermine the state’s ability to respond prudently to an economic downturn. Avoiding cuts that would critically erode tax revenue flows that serve as working rainy-day funds or that feed budget reserves will leave Utah in good shape to respond to a recession.

If Utah policymakers can craft a fix to the state sales tax policy that delivers a tax cut to working Utahns, supports strong families and maintains fiscal flexibility in the face of a recession, they will position Utah for continued economic strength and remind the nation why Utah is the best-managed state in the U.S. Our elected leaders have the opportunity before them. Now it is up to them to take it.