Socialist Capitalism and Utah’s HB441 Tax Reform

As you may have heard, the Utah House of Representatives rushed out a sweeping tax bill (HB 441) that was developed behind closed doors and slammed it through its first committee hearing. It is unlikely that the bill will be able to be thoroughly vetted as the session is coming to an end.

I’m trying to get time to fully delve into the 260 page, 8,023 line bill but probably just won’t be able to before the legislature votes (with the Salt Lake Chamber of Commerce running things up there, it will likely pass). However, even if this bill were good, I would oppose it because it is something that should’ve been developed in the open and given plenty of time to be reviewed and tweaked if/when unintended consequences etc. are found. The last minute, behind-closed-doors nature of this bill is a non starter. They can hold it and deal with it via interim committees until the next session.

I’m sure they’ll squawk about the bill fixing the penalty they knowingly applied to Utah’s families last session but that is something they could fix with a small bill rather than using it as a fig leaf to try to ram sweeping legislation through that hasn’t been publicly vetted. Don’t fall for this snake oil salesman line if they trot it out.

In terms of the bill itself, here’s what I understand so far:

  • It will reduce taxes some companies pay to avoid multiple taxation. For example, I buy raw material and pay sales tax, then sell my product to another company and charge them tax, they make something else with my product and charge the next producer tax and so on until the consumer finally pays the last sales tax.Sounds fair, right? On the face yes, that would be good BUT it depends on how that’s implemented and from what I can tell, it’s implemented very poorly and only benefits the crony capitalists while leaving small businesses unprotected. More on that in a moment.
  • Lowers the corporate income tax rate to 4.75%
  • It will “fix” the increased tax penalty on Utah families. Again, that can easily be done with a small, self-standing bill (see above).
  • It will increase the sales tax on everyone by taxing services although we are told that the drop in the sales tax rate and income tax rates will be revenue neutral (at least for the next 15 minutes or so).

The first bullet point notes cleaning up the multiple layers of tax placed on an item before it get’s to the consumer. They botched it and probably intentionally at the behest of the Salt Lake Chamber of Crony Capitalists. They have it set up so that Utah taxpayers subsidize certain politically-connected businesses.

First, it will reduce the cost of a product (no tax built into the cost) by passing that cost to consumers who buy the product. That’s totally fine if the product/material is bought by a Utah consumer. However, if the product is shipped out of state to California, Mexico, Europe or Asia etc., then those purchasing consumers or businesses don’t pay the tax while Utah consumers do.

For example:

Acme Beauty in Utah produces for nail clear coat and charges $10/gallon (price includes corporate tax costs). I buy it in Utah and I have to pay about $10.70 (paying both the reduced corporate tax portion and sales tax). Meanwhile, if I buy it in France, I pay $10 and have only paid the reduced corporate tax in the product. Thus, the business reaps the profit while Utahns shoulder a large part of  taxes that paid for the infrastructure, environmental, educational etc. ‘overhead’ costs that made it possible for the company to ship the product and have employees here. Folks in France only paid the reduced corporate tax portion and transferred the rest of overhead costs incurred by the state to taxpayers.

Furthermore, if you are a business offering a service you are still hit with multiple layers of taxation. Using the above example, if I run a nail salon and buy the clear coat, I pay $10.70/gallon and incorporate that in my cost of my manicure service ($5/nail). With new tax on services, I must then charge sales tax raising the price to about $5.35/nail. I have thus double collected tax on the final cost a Utah resident pays (once for the clear coat and then for the service).

Ultimately, the way the tax reform appears to be set up is designed to socialize the costs while privatizing the profits. Utah consumers pay much more into the overhead when certain privileged businesses reduce their tax burdens and reap additional profits from lower costs. On top of that, nonresidents reap the benefits of purchasing goods that were exempt from sales taxes on their inputs.

This whole things sure sounds like ‘socialist capitalism’ to me.

The tax scheme appears to benefit big business (which is more likely to produce materials and do business outside of Utah) and disproportionately impact small business (such as mom & pop services within the state) and Utah taxpayers. This type of scheme is right in line with the Salt Lake Chamber of Commerce which has a history of looking for ways to push costs onto others and spinning it like they care about the particular vehicle they’ve decided to employ in that endeavor.

I suppose the legislature could remedy this by requiring a tax be paid on items purchased by nonresident addresses but that too would need to be studied and there isn’t enough time for it. The more I type and think about this, the more it really sounds like another Chamber of Commerce crony capitalist gambit to slam something through before anyone can figure out the full effects.

Further reading: The Salt Lake Chamber also  directly supports Medicaid expansion as well as indirectly through the United Way. The Chamber likes expansion as it pushes healthcare costs from business onto taxpayers. Click the link and look at the sections on the “Health Systems Tax Force” and the United Way. UPDATE: Speaking of Medicaid expansion, I forgot to mention that it is funded with a sales tax increase. That is how the Chamber made sure they would push the cost onto residents and, by running through this tax reform bill, they further shift the cost onto residents as they further reduce their remaining exposure to sales tax.

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