'Flatter' tax OK'd despite protest

A lower, "flatter" state income tax doesn't appeal to everyone.

Before the Senate Revenue and Taxation Committee unanimously passed the flat tax bill Friday, sending it to the full Senate, defenders of potential lost credits let lawmakers know the tax cut will hurt their causes — and they won't give up their campaign to restore those credits.

"There are a lot of credits that were put in here for good reasons, and they may have to be reconsidered in the future," Beverly Miller, director of Utah Clean Cities, warned the committee.

Income tax credits for using clean fuel, for historic home restoration and for retirement investments would be lost under SB242, which lowers the top rate from 7 percent to 4.9 percent.

To do that and minimize the loss in tax revenues, lawmakers had to eliminate some long-standing tax credits and deductions, including the 50 percent of federal taxes paid and health insurance premiums. Other targeted credits are for at-home parents, low-income housing and employers who hire a person with disabilities.

The only exemptions that would remain are for mortgage interest, charitable contributions and dependents. There would also be an exemption from all state taxes for anyone earning below the poverty line.

Some current exemptions, such as IRA accounts and student loan interest, would be included because of use of the federal adjusted gross income. But there would not be additional exemptions given at the state level.

"A whole host of tax benefits are being set on the shelf in order to lower the rate," said Sen. Curt Bramble, R-Provo, the bill's sponsor.

Eliminating most exemptions is necessary to meet the three primary goals of SB242: lower the overall income tax rate, simplify the tax code and not hurt revenues, which are dedicated to education funding. The bill's one-time impact is $60 million in lost revenue increases for the uniform school fund, said Neal Ashdown, chief of staff for Gov. Jon Huntsman Jr.

The proposal is a centerpiece of both Huntsman's and the Tax Reform Task Force's plan for tax reform this year. Ashdown said that the rate could be adjusted when new revenues come in next week, but not above 5 percent.

The lowered tax rate is an important tool for bringing new business to Utah. Currently, the state is in the bottom 15 states nationally for tax burden, but the new rate would place it in the top 15 — and more importantly, it would make it one of the lowest in the West.

"This will help us in terms of job growth," Ashdown said. "It's an extremely important piece of economic development."