Dual Utah tax system?

Utahns may get 2 choices on income tax

Published: Tuesday, May 2 2006 12:00 a.m. MDT

A political compromise is in the works on Utah's personal income tax, and come next year you may be able to choose between the current 7 percent state system or switch to a new "flatter, fairer" system with a 5 percent rate for all but fewer exemptions.

"This is a great chance for the state to move to a progressive tax system," said Rep. Wayne Harper, R-West Jordan, on Monday.

After a House GOP caucus last month — a caucus that showed that Huntsman's so-called "H3" flatter-rate tax reform plan was "deader than a fried chicken," as one House Republican put it — Huntsman and GOP legislative leaders started looking for a compromise.

All 75 House seats are up for re-election this November. And since the 2006 Legislature adopted a $70 million income-tax cut this year but failed to adopt a plan on how to return that money, there is political pressure to reach some kind of compromise so the $70 million cut can become law by Election Day.

Harper, who co-chaired an exhaustive tax-reform task force last year, said the bifurcated plan "just makes sense."

Huntsman deputy chief of staff Mike Mower said Monday night that the new compromise "moves us a great distance to our goal of a more competitive tax system and one that secures education funding."

However, Mower said the governor was not yet ready to call a special legislative session to enact the compromise. "This compromise is receiving great interest," Mower said. "We are very pleased with it." Huntsman isn't going to call a special session until the votes are lined up, several legislators said.

"I think the dual system has real merit," said House Speaker Greg Curtis, R-Sandy, who added he believes there could be 38 votes, a majority, in his GOP House caucus alone — enough to secure passage even if Democrats don't agree.

But Senate Minority Leader Mike Dmitrich, D-Price, said he hopes to get "at least half of the Democrats (in the Legislature) to support this. It's a fair compromise, can really help some lower-income Utahns" by giving them a chance to pick a tax system that will save them money.

As one House Republican, who asked not to be identified, said Saturday during the Salt Lake County GOP convention: "This is a political win-win for everyone — how can you object to a compromise where every Utahn can decide which tax system he pays?"

But Senate President John Valentine, R-Orem, said such a two-prong system could be confusing to operate and difficult for state budgeters to determine how much income tax will actually come in.

"I'm not totally opposed" to the new compromise, said Valentine, who is a tax attorney. "I'm asking our fiscal analysts and the Tax Commission to come up with some numbers" on how the two-prong approach will actually work.

Tax Commission spokesman Charlie Roberts said commissioners are aware of the proposed compromise. It could be a real headache to run two personal income-tax systems at the same time. "But it could be done," he added.

"I'm not very supportive" of the compromise, said Sen. Curt Bramble, R-Provo, who co-chaired last year's tax-reform task force. Having a dual system "creates a complexity, and if you are locked in and can't change, we're just facing discontentment year after year" as a filer's financial situations change and he can't quickly move to the other, more beneficial, system, Bramble said.

Harper points out, however, that in 2005 the Legislature allowed Utah corporations to figure their income taxes two different ways. It saved businesses several million dollars. And businesses, the state Tax Commission and state budgeters were able to deal with that system just fine.

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