Thursday, 15th April, 2004
RE: Reforming Utah’s Income Tax System
CONTACT: Mike Jerman, Vice President, 972-8814 or 808-8814 (cell)
Utah’s income taxes are antiquated and out of control, according to the Utah Taxpayers Association. In a press conference held on April 15, in front of the Utah State Tax Commission, the Utah Taxpayers Association announced its Income Tax Reform Package.
“The typical Utah family pays more in state income taxes than it pays in federal income taxes, more than it pays in sales taxes, and twice as much as it pays in property taxes on its home,” said Association Research Analyst Chad Vanderlinden. “Utahn’s tax burden is the nation’s 9th highest, up from 17th highest in 1993, and Utahns are paying 27% of their income in taxes” Vanderlinden said.
Now is the time to reform Utah’s income tax
“The timing for tax reform is excellent for two reasons”, according to Mike Jerman, Vice President of the Utah Taxpayers Association. First, the economy is on the rebound. More jobs are being created, and corporate profits are increasing. Consequently, tax revenues are starting to increase again, and the state is running a strong surplus for the first time in years.
Second, state and local governments will soon be receiving revenues from implementation of the Streamlined Sale Tax (aka remote sales tax). Initially, implementation of the remote sales tax will be voluntary. If the U.S. Congress eventually mandates collection of remote sales taxes, Utah’s state and local governments are expected to receive more than $150 million annually from this new source of revenue.
Some may argue that this is not a new source of revenue since Utahns have been expected to pay this tax even though most never have and never even knew that they were supposed to. Others have maintained that Internet purchases have significantly dented the sales tax base and this revenue should not be considered a new source.
However, Utahns have been purchasing items remotely for decades through mail order catalogs, and starting July 1 many retailers will begin imposing taxes on these purchases for the first time ever. Moreover, despite the recent recession and the so-called shrinking of the sales tax base, Utah’s sales tax base is 129% larger now than it was in 1990 while inflation and population have grown at a combined rate of 105%.
In the recently concluded session, the Legislature wisely passed legislation that allocates remote sales tax revenues above $8 million to a restricted account with the intent of using the funds to reduce taxes elsewhere.
In the very recent past, state and local governments have raised various taxes and fees. Cable and satellite service are now subject to taxes, and remote sales will soon be subject to taxes. Most school districts have raised taxes in the past two years, and more are expected to raise property taxes by as much as $15 million this year because of Gov. Walker’s reading program. As the economy improves and corporations begin paying higher income taxes and people begin spending more money, Utah’s tax burdens, which have decreased slightly due to the recent recession, will reach an all-time high because of the new taxes and fees that have been implemented in the past couple of years.
Specific Tax Reform Proposals
The Utah Taxpayers Association advocates for sound tax policy that promotes equity and economic growth. At its annual Taxes Now Conference scheduled for April 30th, the Utah Taxpayers Association will unveil significant proposals aimed at reforming state and local taxes. Some of these proposals are as follows:
Non-refundable Earned Income Tax Credit
Utah’s total state and local tax burden is slightly regressive, but not quite as regressive as the national average. The regressivity is due to Utah’s high sales tax burden. “Reducing the overall tax burden on low income households is relatively inexpensive since low income households naturally do not earn a lot of income” Jerman said. Households earning less than $20,000 per year account for less than 3% of all income taxes paid in Utah. Reducing tax burdens while incentivizing work makes more sense than increasing taxes to fund welfare programs.
Bracket Adjustments and Indexing Tax Brackets for Inflation
Utahns are subjected to an annual tax increase and are typically unaware of this. Every year, Utahns pay an additional $4 million per year above and beyond inflation because the state refuses to annually index tax brackets for inflation. The federal government has been indexing federal income tax brackets for more than 20 years, and it’s time that the state did the same. Due to the state’s refusal to index tax brackets, most Utahns with full-time jobs are in the highest tax bracket.
Means-tested Tuition Tax Credits
Utah will never be able to match other states in per pupil spending unless it is willing to nearly double existing income tax burdens, and such an increase would have severe impacts on Utah’s economy. While funding will always be an important issue, meaningful education reform is needed, and this is only possible if more parents have more choices for their children’s education.
“Diverting a growing student population to the private sector at a cost that is less than the variable cost to educate these children in the public sector makes complete fiscal sense” Jerman added. (The Taxpayers Association did a report on the anticipated impact of tuition tax credits on urban districts with declining enrollment. The report is available at www.utahtaxpayers.org.) Means-testing eliminates all of the significant criticisms of tuition tax credits such as tax credits will only be used by the wealthy.
Unfortunately, “tax reform” has frequently been an excuse to raise taxes, especially in the past couple of years when budgets were very tight. However, now that the economy is recovering and additional revenues from the remote sales tax will be filling state and local coffers, Utah’s elected officials should be focusing on ways to reform our tax system and lower Utah’s overall tax burden.
This year’s gubernatorial election will be the most highly contested gubernatorial election in Utah since 1992. With the Utah Republican Convention only weeks away and the general election seven months away, Utahns need to determine which candidates for public office are committed to meaningful tax reform and lower taxes.