Monday, April 17, 2000
RE: $3.9 Million Automatic State Income Tax Increase.
CONTACT: Greg Fredde, Vice President, 972-8814 or 550-8390 (cell)
Taxpayers Association Denounces Automatic Income Tax Increase
As Utahns rush to the post office to mail their final state and federal income tax forms, they will collectively pay a $3.9 million state income tax increase, according to the Utah Taxpayers Association. “Because of the State’s failure to index Utah’s income tax brackets, Utahns will pay an annual automatic tax increase of $4 to $5 million,” said Greg A. Fredde, Vice President of the Utah Taxpayers Association. “Now is the time to eliminate this annual, automatic, hidden tax increase. The Utah Taxpayers Association believes that hidden taxes which escape public accountability are inherently bad taxes,” Fredde said.
Utahns already carry one of the heaviest income tax burden in the nation, Fredde said. Based on 1995-96 data, Utahns carry the 13th heaviest individual income tax burden in the county. “On average, individual income taxes consume $30.45 of every $1,000 of personal income, 21% more than the 43-state average,” Fredde noted. Of the Western States, Utah’s income tax burden ranks second heaviest behind Oregon, which does not have a sales tax.
The primary reason for Utah’s relative heavy income tax burden is the state’s failure to adjust the state’s income brackets for inflation since 1973, according to Fredde. “Based on a recent Tax Commission study, if the income brackets had been adjusted for inflation since 1973, a family of four with an Utah taxable income of $27,300 or more would pay $525 less in annual income taxes,” Fredde said. In addition, Utah’s top income tax bracket would be $26,250 compared to the $7,500 currently.
Utah’s high income tax burden is largely a result of antiquated tax brackets, not excessively high rates. Of the 34 states, including the District of Columbia whose income tax structure uses more than one income bracket, the average minimum tax rate was 2.56%, compared to Utah’s minimum rate of 2.3%. The average maximum tax rate was 7.33%.
However, of the 34 states, including the District of Columbia whose income tax structure uses more than one income bracket, the average lowest income bracket was $7,760. The average maximum income bracket was $47,580. In Utah, any AGI over $7,500 is taxed at the highest rate, 7%.
Utah’s income tax brackets have not been adjusted since 1972. As a result, over 70% of all Utahns who file a state income tax return fall into the highest income bracket which begins at $7,500. By comparison, of the 34 states with multiple income tax brackets, the average maximum bracket begins at just over $47,500.
There is sufficient state revenues to pay for annually indexing Utah’s income tax brackets, according to Fredde. Of Utah’s diverse taxes and fees, the individual income tax generates more revenue than any other. In fact, in FY 1998-99, individual income tax revenues will exceed $1.46 billion. By comparison, state sales taxes generated $1.32 billion in FY 1998-99 while state and local property taxes are expected to generate $1.35. Income tax revenues accounted for 47.3% of all state tax revenues (excluding property tax) in FY 2000 and accounted for nearly 25% of all state revenues.
In addition, Utah’s individual income tax has been the state’s most dynamic major revenue source. Over the past four years, individual income tax revenues have grown by an average of 8.1% per year. “In fact, Governor Leavitt’s FY 2001 budget anticipated nearly $105 million in new income tax revenues. Setting aside $4 to $5 million of the annual new revenues to index for inflation will not result in a fiscal crisis,” Fredde said.
For the past four years, legislative efforts to index Utah’s tax brackets for inflation have failed. Most recently, during the 2000 legislative session, legislation to begin indexing the tax brackets passed the Senate and House Revenue and Taxation Committee overwhelmingly. Unfortunately, the fiscal note was not prioritized and as a result, the bill was not sent to the House floor.
“The Utah Taxpayers Association calls on the Governor and State Legislature to pass legislation to eliminate Utah’s annual $4 million automatic, hidden income tax increase. After all, taxpayers know how best to spend their money,” Fredde concluded.