Monday, April 12, 1999
Higher State Income Tax Burden
CONTACT: Greg A. Fredde, Association Vice President, 972-8814

Utahns Carrying Higher State Income Tax Burden This Year

As the April 15th tax filing deadline approaches, many Utahns are finding that their state income taxes are higher, while their federal income taxes are lower. Lower deductions on state tax returns for federal taxes paid and failure to index state income tax brackets for inflation, are the reasons for the rise in state income taxes. “Utah will receive an estimated $19 million windfall in FY 1999 and FY 2000 because of the federal tax cuts and a $3.2 million windfall for failing to index the tax brackets for inflation. Together, this increase in tax burden will only add to an already excessive income tax burden,” said Mr. Greg A. Fredde, Utah Taxpayers Association Vice President.

Due to the inclusion of a $400 child tax credit, the deductibility of student loan interest, credits for tuition, and improved IRA provisions, federal income taxes have been reduced. “Ironically, a reduction in federal taxes means less can be deducted from state returns, increasing the state income tax burden,” Mr. Fredde noted.

In addition to deducting less federal taxes from state returns, many Utahns will be pushed into higher tax brackets, thereby further increasing their state income tax burden. “Utah has failed to index the state income tax brackets for inflation since 1973, costing taxpayers millions of dollars in increased income taxes. In fact, based a study by the State Tax Commission, Utahns will pay $317 million than otherwise would have been collected if the tax brackets had been adjusted for inflation since 1973,” explained Mr. Fredde.

Like most other states, Utah has several income tax brackets with rates increasing with income, but this is where the similarity ends. While the highest tax bracket for many states begins at taxable incomes of $25,000, $50,000, or even $200,000, Utah’s top bracket begins at $7,500, forcing most taxpayers to pay at the highest rate of 7%. Using the standard deductions and personal exemptions, if a family of five earns more than $25,000 they will pay at the highest rate. A newly married couple without children earning $19,000 will also pay 7% of its taxable income. In order to qualify for the lowest tax rate of 3.3%, the same married couple would have to earn less than $11,625.

Utah ranks 9th highest among the 50 states in income taxes per $1,000 of personal income “It is absolutely essential that Utah make changes to reduce rather than increase the state income tax burden,” explained Mr. Fredde. “Indexing Utah’s income tax brackets for inflation and preventing state windfalls from changes in the federal income tax are good places to start,” Fredde concluded.