Tax cuts likely for Utahns

The political trouble for Huntsman and GOP legislative leaders started early Tuesday. Several moderate — and even a few conservative — legislators asked embarrassing questions about the income tax reform/tax cut and transportation bonding.

"It appears to me that the flat tax is targeted for higher-end people," Rep. Steve Clark, R-Provo, told an informal meeting of all 75 House members, Republicans and Democrats.

True, said House Speaker Greg Curtis, R-Sandy, "It is the upper income that would switch" from the current tax system to the new flat-rate 5.3 percent system.

One Democratic legislator, who asked not to be identified, said that under the flat-rate system, the top 5,000 Utah income taxpayers would split up $40 million among themselves, with nearly 2 million less-wealthy Utahns splitting up $30 million.

"It seems inherently unfair," the lawmaker said.

But several representatives argued it only is fair to give the people who are paying most of the income tax proportionately larger tax cuts.

Because the new tax systems would spread the brackets of the current semi-progressive system, everyone would receive a tax cut in 2006: A married couple would get a tax cut of $48; a single person would receive a $24 tax cut.

The flat-rate tax system would start in 2007. Taxpayers would only switch to that system if they saved more than under the current system. Still, a couple making $100,000 might see a $600 tax cut under the flat-rate system; a couple making more than $250,000 might see a $1,000 tax cut, economists said.

The experts said 95 percent of Utahns would stay in the current system because they would get a better tax cut there — if only $24 or $48.

Those 95 percent would see, overall, a $30 million tax cut. And the other 5 percent — most of them making more than $60,000 a year — would get about $40 million of the overall $70 million tax-cut money set aside earlier this year.

Those numbers clearly aren't good political news for legislators looking at re-election in just two months.

In their closed party caucus, House Republicans voted to place the flat-rate level at 5.4 percent. That would switch the groups who got the most tax-cut funds — $40 million would go to low- and middle-income Utahns, only $30 million to those picking the new flat-rate tax system.

While the Senate did not consider that option, Valentine said he believed the GOP Senate majority would support it. Sen. Curt Bramble, R-Provo, said the switch could actually boost the size of the tax cut to nearly $80 million.

There may be a bit of a tussle over the flat-tax rate — 5.3 percent or 5.4 percent. But the real fight now appears to be over transportation spending.