More tax cuts? Huntsman says a $70 million slash is 'first step'

As Utah lawmakers look to slashing state personal income taxes by $70 million in a special session next week, Gov. Jon Huntsman Jr. is already talking about taking the next step — more tax cuts that lead to even lower rates.

"It's a first step," the governor said of the dual-track income tax system that would allow taxpayers to stay in the current system or elect to pay a flat tax beginning in 2007. "There's more to come."

Huntsman told the Deseret Morning News Tuesday that he is confident there will be enough votes during a Sept. 19 special session to pass that legislation as well as to give authority for voters to raise sales taxes by one-quarter cent for road, mass transit and airport projects.

Both Republican and Democratic leaders in the Utah House agree that both items will pass next week. In the Senate, the GOP majority has endorsed the income tax changes but is still being sold on the transportation proposal.

Picking up a budget briefing book for fiscal 2007-08 — a book with yellow highlights and hand-written strike-overs — Huntsman said he hope the state's economy will keep on humming so there will be money for significant increases in education spending, with enough left over for the next step in his income tax reform package.

Just what that step would be remains to be seen.

The governor said his goal is to eventually switch all taxpayers to a flat-tax system that would include a few deductions — for items such as charitable giving and home mortgage interest — similar to the "H3" plan he failed to get passed during the 2006 Legislature.

Huntsman seeks lower tax rates to be more economically competitive, especially with surrounding Western states that are also vying for the jobs created by new and expanding businesses.

"I've always argued that a flatter tax, in the 5 percent range, would be a good place to take tax reform. It would make us truly competitive. We're taking an initial step. We'll see how the economy performs in subsequent years and see if we can afford to do more," he said.

But critics of the changes are already saying that Huntsman's flat-rate income tax of 5.35 percent will only benefit 5 percent of Utah taxpayers. And most of those will be upper-income Utahns, critics say.

Huntsman said while perhaps only 5 percent to 10 percent of taxpayers will move over to the flat-rate tax in 2007, more tax cuts and lower rates "will improve our migration" to the new system to 30 percent to 40 percent over the next few years.