by Howard Stephenson
Two weeks ago I participated in a public dialogue sponsored by the Hinckley Institute of Politics at the University of Utah. (Incidentally, the nationally recognized Hinckley Institute is celebrating its 40th Anniversary this year.) The purpose of the discussion was to hear arguments about which current proposed policies are most “family friendly.”
The panel was moderated by Paul Mero of the Sutherland Institute. Participating with me on the panel were Karen Crompton of Voices for Utah Children, Sara Wilhelm of Utah Issues, and Allan Carlson of the Illinois-based Howard Center for Family, Religion & Society. Each of these organizations, including Utah’s Sutherland Institute, promotes various social policies to provide direct or indirect government financial benefits to children and families and tax policies which tax the rich in order to fund incentives for formation and economic stabilization of families, and in Sutherland’s case the unmarried, and the childless
The idea for the dialogue came from a friendly argument between myself and Paul Mero over the flat tax which is currently being debated in the Utah Legislature’s Tax Reform Task Force. Paul Mero’s Sutherland Institute opposes the flat tax, arguing for retention of mortage interest deductions, charitable deductions, and dependent exemptions because, they say, these are “family friendly.” Sutherland believes that the dependent exemption affects decisions to marry and bear children and then rear those children in a traditional family. Mero also argues that the mortgage interest deduction provides for more stable families as more of them experience an added economic benefit when they own their own homes. Sutherland also believes charitable deductions provide a salutary effect on religious giving and donations to other charities, all of which promotes a family-friendly culture.
During the Hinckley Institute dialogue I challenged all of these premises, arguing that none of these tax exemptions or deductions can be shown to have any measurable effect on charitable giving, home ownership, or family size and, what’s more, I said, we have charts and graphs to back us up. Instead, I agreed with leading economists who show that more important than any package of deductions and exemptions in tax policy and more important than any package of social welfare benefits intended to support children and families, are government policies which allow an unfettered market system to create an improved economy and provide better jobs.
The Utah Taxpayers Association supports a flat tax which would eliminate all personal exemptions and deductions including mortgage interest deductions and deductions for charitable contributions. The Association argues that one of the most significant deterrents to location of high-paying jobs in Utah is our punitive 7% nominal individual income tax rate. Although business surveys show that taxes are not usually the most important factor in business location, that wage rates, energy prices, transportation, and a trained workforce are higher on the list, when all things are otherwise equal, the CEOs and CFOs see what they will personally be paying in Utah income taxes coupled with their concern about bringing their families to Utah’s mysterious, unique culture, and too often choose to locate their operations in another state.
Leading economists across the nation support either adoption of the flat income tax or elimination of the income tax entirely and replacing it with a national consumption tax
(currently called the Fair Tax) is supported by leading economists across the nation as a way to eliminate the drag the U.S. income tax has been on the nation’s economy. By making our tax system transparent to economic decision makers, they say the American economy would improve significantly and permanently.
Fortunately, contrary to media reports, the flat tax is still being considered by the Tax Reform Task Force. Churches and charities have weighed in opposing the loss of charitable exemptions and the realtors have testified against the loss of the mortgage interest deduction. Depending on what influence these groups have with the legislature we may end up with a higher rate than the optimum 4% pure flat tax. Even if the final rate ends up at, say, 5%, the lower rate would go a long way to improving Utah’s economic attraction to higher paying employers.
Who would benefit most from a flat tax? The ants.
Those who engage in provident living, who use credit wisely and plan for their futures will most benefit from the flat tax.
Who would be hurt by flat tax? The grasshoppers.
Those living on the edge financially, including who use their homes as virtual ATMs in accessing accrued home equity. Those who contribute to Utah’s distinction as the state with the highest bankruptcy rate in the nation would also not benefit.
Incidentally, Utah Foundation is now completing a comprehensive study on bankruptcy which, hopefully, will shed light on the causes of Utah’s high rate.
In the meantime, it’s clear to me that the policies which will benefit the financial viability of families in Utah are those which will raise the economic tide which lifts all boats. These include the flat tax, the single sales factor in Utah corporate income taxes and expansion of the sales tax exemption on tools of production.