GOP hopes to address dual tax system in fall

Like the boy crying wolf, Gov. Jon Huntsman Jr. and leading GOP legislators continue to say that there is a real shot at holding a special session this fall to adopt a large income tax cut.

This week Huntsman told Deseret Morning News Capitol reporter Lisa Riley Roche that "more and more" consensus is building among the 104 part-time legislators that a dual income tax system brings not only tax reform and increased competitiveness to Utah, but that it can be achieved "without a single loser."

In other words, no Utahn would pay more under the change.

That's because individuals and married couples would figure their state income taxes two different ways. They could keep the current graduated income tax system, a system that gives all kinds of exemptions and deductions, including deductions for charitable giving and mortgage interest.

Or they could chose a flat-rate system, one that doesn't have the deductions for charitable giving or mortgage interest but has a single tax rate nearly 2 percentage points under the current system.

There are basically four alternative plans being discussed under the broad dual tax system scheme, each with a different mix of tax rates, deductions and exemption phase-outs.

While Huntsman's chief of staff passed out one alternative to GOP legislative leaders two weeks ago, Huntsman said he can accept variations of that plan.

What he's looking for is a plan that can pass the Legislature.

And while it doesn't look like the majority Republicans are necessarily playing partisan politics via tax reform just before the November legislative elections, the result could well be that Democrats end up being painted into a political corner.

Here's why: All income taxes by law go into the Uniform School Fund, out of which flows monies to public education. Utah's colleges and universities get a big chunk of their funding from the USF as well.

In the 2006 Legislature, lawmakers agreed to a $160 million tax cut this year. They adopted a 2 percentage point reduction in the state sales tax on food — a $70 million tax cut that takes effect Jan. 1. They also gave $20 million in targeted business tax cuts.

But while they agreed to keep $70 million aside for state income tax reform/tax cuts, the final night of the session House Republicans declined to support Huntsman's flat-rate income tax changes. Some claimed that there were too many "losers" who would see a tax increase under the flat tax.