Utah Legislators Consider Consumption Tax

July 9, 2008

Tuesday, members of the state legislature in Utah considered replacing the current three-prong tax system (sales, income and property taxes) with a single consumption-based tax. Now, while the details of such a policy shift have not been identified, it reminds us that people have been talking about the potential of broad-based consumption taxation at the federal level for a long time but to no avail.

As we have stated before, the United States relies less on consumption taxation, so a shift in that direction would bring us closer to the mix of taxes employed by many European nations.

However, the consumption-based tax proposed in Utah does appear to be comparatively radical. Public schools have gotten more and more revenue from state government over time, but in every state local property tax revenue is still the principal funding source. While we understand the frustration of state legislators who want fundamental tax reform, not tinkering, local tax authority would appear to be almost nullified by this proposal.

Washington, Tennessee and several other states get the majority of their revenue from consumption taxes, i.e., retail sales taxes and gross receipts taxes. Those are known to be successful tax systems, but the Utah proposal would go much further.

A legislative working group has been considering the matter for several months but has not made a formal proposal.

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