5% tax plan unveiled

Charitable gifts and having up to three dependent children would be deductible — but not mortgage interest payments — under a 5 percent "flatter" state income tax Gov. Jon Huntsman Jr. proposed Wednesday.

Huntsman said the net effect of his tax reform proposal, which he said includes having a filing form the size of a postcard, would be a tax cut for most Utahns now paying 7 percent and a much better ranking for Utah on national tax-burden rankings.

But families big and small who are carrying a lot of first and/or second mortgage debt may well see a small-to-moderate tax hike, said Gary Cornia, a Brigham Young University tax expert who advised Huntsman on the new plan.

Details of the plan are sketchy, and the possible impact both on specific income levels and family sizes that aren't fully known now will be part of the debate as tax reform moves toward the 2006 Legislature in January, the governor said.

Huntsman did not attend a Wednesday morning session of the Tax Reform Task Force where his much-anticipated tax plan was explained by his trio of tax experts — Cornia, CPA Keith Prescott and BYU professor Ray Nelson — in a 90-minute presentation.

In an afternoon press conference, Huntsman said tax reform was at the top of a list of goals for his administration and a key to economic development. He said under his proposal, the state's tax rate would drop to the 35th-highest from the 16th-highest in the country.

The governor emphasized that he did not want low-income Utahns to "shoulder any burden of tax reform," as a true flat-tax rate uniformly applied to all earnings would do. He called his plan "flatter, fairer and simpler" than the current tax system.

"It's a system that has become largely corrupted," Huntsman said, a reference to the myriad federal deductions now reflected in the state tax code. Utah's tax return is two pages long and requires 18 pages of instructions.

Lowering the tax rate from 7 percent to 5 percent should stimulate economic development, both the governor and his tax experts said. Huntsman's plan overall would result in a "modest tax cut of between $10 million and $14 million," Cornia said.

Tax cuts

Some legislators want to do more.

Task force member Rep. John Dougall, R-Highland, said the new rate should be 4.5 percent. That would be a tax cut of around $200 million. The state realized record tax surpluses last fiscal year, with income tax revenues coming in hundreds of millions of dollars higher than anticipated just two years ago.

"We are right for a tax cut now," Dougall said.