Republican state leaders are putting forward new income-tax reform and tax-cut proposals that could drop 20 percent of taxpayers from the state tax rolls completely and spread out a $115 million tax cut across the board.
There are no losers who would pay more under the new plans, said Rep. Wayne Harper, R-West Jordan, on Monday.
"There are only some big winners and those are mostly low-income Utahns," said Harper, co-chairman of the Legislature's main tax-writing committee.
"We are very pleased that interest in these new plans is coming together," said Mike Mower, spokesman for Gov. Jon Huntsman Jr. "There is a lot of momentum" for them.
The Legislature's Revenue and Taxation Committee plans to discuss several new tax-reform proposals on Wednesday, said committee co-chairman Sen. Curt Bramble, R-Provo.
One new proposal has been drafted by Huntsman. The other, a slight variation from the governor's new plan, is being put forward by Harper, Rep. John Dougall, R-Highland, and other GOP House leaders.
Can there be enough agreement so that a special legislative session can be called by the governor this year, in time to give a significant income-tax cut in 2006?
"That's what we're working toward," Harper said Monday. "I think there will be significant support in the House and Senate, from Republicans and Democrats alike, once this is explained and studied."
"If there can be general agreement on which way to go, the governor is very open to calling a special session" before the Legislature convenes in the 2007 general session in January, said Mower.
Harper said he didn't know how many low-income Utahns would soon be paying nothing under the "dual income-tax system."
"But I think we could drop as many as 20 percent to 25 percent of people" from the income-tax rolls, he said.
That should get some Democrat votes, GOP leaders hope. Since Republicans hold the governorship and more than two-thirds majorities in both the House and Senate, they don't need Democratic approval. But a bipartisan tax reform would look better, leaders said.
Bramble, a certified public accountant, said over the last month, legislative GOP leaders and Huntsman have been discussing various kinds of tax reform based on the idea of a dual personal income-tax system, originally floated in late spring.
"With the change of just a few lines in the current tax form," said Bramble, Utahns could figure their taxes two different ways. Taxpayers would then pick the option that saved them the most money.
That does away with one of the big political complaints of adopting only a flat-rate income tax: Some taxpayers who get special exemptions now, like senior citizens, could stick with the current system. And then there would be no "losers" who might have paid slightly more under Huntsman's original flat-rate plan.
Harper gives these key details on the new plans:
A flat-rate system, in which 5.3 percent would be levied against a filer's federal adjusted gross income. To keep the wealthiest individuals from getting most of the tax breaks, lower-income individuals and families could take personal exemptions that phase out as income levels rise. There would be no deductions, however, for mortgage interest or charitable giving.
"We believe about 25 percent of taxpayers would benefit under that plan, and so would move to the flat-rate system," said Harper.
Or, taxpayers could choose to stay in the current, graduated income-tax system. That group would still get to deduct mortgage interest, charitable giving and other exemptions that they have now.
The governor likes a variation that would drop the current top rate from 7 percent to 6.9 percent so that all who stay with the current system would get a small tax cut.
But Harper said he, Dougall and some other House members like a variation on Huntsman's plan that would keep the 7 percent top rate but spread out the brackets thus giving tax cuts in a more even manner and drop more low-income people from paying any income tax.
The Harper/Dougall plan keeps the 5.3 percent flat rate but would also give flat-tax filers a $250 credit for individuals, and a $500 credit for married filers. That drops a "significant number" of low-income filers under that option, as well.
Huntsman's reform package would be, overall, a $74 million tax cut.
Harper said the GOP House modified plan could give tax cuts up to $115 million and so is preferable.
Mower said Huntsman crafted his new plan to meet the already-approved $70 million income-tax cut. But considering growing state tax revenues, "the governor is open to the $115 million reduction" or some other amount, Mower added.
In the 2006 Legislature, the House and Senate agreed to give $160 million in tax relief $70 million through reducing the state sales tax on food, $70 million in income-tax relief and $20 million in business-tax cuts.
But while the food tax and business taxes were reduced, on the last night of the session the House wouldn't go along with Huntsman's flat-rate income tax reform. The $70 million earmarked for that was put aside, but not actually given.
Now, said Harper and Bramble, about $70 million can be given in state income-tax cuts, but since the state is seeing even more tax revenue flowing in, greater tax cuts can and should be given.
Harper said the House GOP plan "would be an income-tax cut of between $105 million and $115 million. And we can afford it, because so much new tax revenue is coming in."
While some GOP legislators are talking about a September special legislative session to adopt the new state income-tax systems and thus tax cuts before all 75 House members and half the Senate face voters in November others say it may take more time for all 104 lawmakers to feel good about the changes.
House Speaker Greg Curtis, R-Sandy, he doubts that a broad compromise can be found in time to give the tax cuts before the November elections.
"I don't see anything happening" in a special session "before the elections," said Curtis. A late 2006 special session would be needed to give Utah Tax Commission officials time to print the new, dual-system tax forms.
With state revenues coming in as much as $300 million over budget in the fiscal year that ended June 30, Bramble said in the current fiscal year of 2006-07, there could be as much as $200 million now available for tax relief.
"The $70 million (set aside for income tax relief) may not be enough. Once we agree on the basic structure, we may want to double that," said Bramble.
Conservative GOP lawmakers want to return at least some of that money via tax cuts and thus slow the growth of state government. The new $9.5-billion budget that started July 1 is more than 17 percent higher than last year's spending, and conservatives have said that only through tax cuts can state spending be curbed.Mower added: "We've supported true tax reform for some time. These (new) reforms would not only give immediate tax relief, but provide a long-term tax structure that makes Utah more competitive" in economic development with surrounding Western states.