Gov. Jon Huntsman Jr. will release his recommended 2007-08 budget on Tuesday, a record-setting spending plan that could top $10 billion.

Huntsman will not discuss any specifics of his overall spending recommendation until then, says his deputy chief of staff Mike Mower.

But as the state looks at huge tax revenue growth — both in the current fiscal year and next fiscal year — Capitol Hill sources are saying that the governor may well recommend "buying down" his flat-rate income tax and/or he could lower the current flat rate tax of 5.35 percent.

Huntsman has said that greater spending on education will be the "heart and soul" of his recommended fiscal 2008 budget. But tax cuts/tax reform will be in his new budget if the state can afford it, he recently told the Deseret Morning News.

By some accounts, Utah could have a $450 million tax surplus in the current fiscal year, which ends June 30.

In a special session earlier this year, legislators agreed to give a $78 million tax cut for 2007 and begin a dual personal income tax system.

Under the new "dual track" personal income tax system, Utahns can choose to either stay in the current income tax system (top rate: 6.98 percent), which gives deductions for home mortgage interest, charitable giving and other traditional tax breaks, or they can move into the new flat rate tax, with a 5.35 percent rate but with none of the normal deductions.

It's expected that people will chose the tax system that saves them the most money. No one will pay more tax.

Huntsman, who has pushed what he calls income tax reform for two years, could give further tax cuts that will encourage taxpayers to move over to his flat-rate tax — a system he says will bring further economic growth.

In his proposed budget, he could recommend several changes to do that:

• First, Huntsman could "buy down" the flat tax by exempting from taxation a certain amount of first-earned income. That is, the first $10,000, $20,000 or $30,000 of income earned could be exempt from any taxation under the flat rate system.

  If you earned $40,000 a year, and could exempt $20,000, then you would pay tax on only $20,000.

  Huntsman and legislators were criticized during the tax reform process earlier this year for adopting an optional flat-rate tax system that seemed to help higher income Utahns.

  And exempting more first-earned income would encourage more lower-income Utahns to move to the flat tax system.

• Secondly, Huntsman could lower the flat tax rate, from 5.35 percent to 5.0 percent. That would also be a tax cut and could move more Utahns into the flat tax system, as well. It would cost about $100 million to go from 5.35 percent to 5.0 percent, Huntsman recently told the Morning News.
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