Looks like an income tax cut is coming your way.

Gov. Jon Huntsman Jr., and legislative leaders say there are enough votes in a special legislative session next week to take what Huntsman says is a "first step" in tax reform/tax cuts.

While less certain, the leaders say it also appears that they can get the two-thirds needed to put on the November ballot a citizen referendum on raising sales tax by a quarter-cent to pay for needed road, transit and airport improvements around the state.

Huntsman's income tax reform is a dual-track system.

First, he would spread the brackets under the current system. For example, currently the top rate of 7 percent kicks in after a married couple earns $8,627. That top bracket rate of 7 percent would start at $11,000 earned.

For the 2006 tax year, the change means $48 less in tax for a married couple, $24 for a single person. Out of the $70 million set aside for income tax cuts by lawmakers in the 2006 Legislature, spreading the brackets will cost around $40 million.

Starting in 2007, a flat-rate tax option will be available. The single rate would be 5.35 percent. But there would not be the numerous credits and deductions under the current system.

About $30 million would be allocated for those who choose the flat-rate system.

Residents would figure their taxes under both systems, then pick the one that gives them the smallest tax owed.

The rub comes in who would pick the flat-rate tax and how much they would save. By far, most of the $30 million would go to Utah's wealthiest citizens.

Last January, after months of study and refining, Huntsman proposed all state income-tax payers move to a modified flat-rate system.

After leaders of The Church of Jesus Christ of Latter-day Saints, mortgage bankers and others cautioned that Utah's personal income tax system should keep deductions for charitable giving and home mortgage interest, Huntsman, a few key lawmakers and various economists proposed the so-called H3 tax plan.

It was not a true flat-rate system (as Huntsman's alternative flat-rate tax is now). H3 gave credit for charitable giving and home mortgage interest.

As in any real income tax changes, there were winners and losers. H3 passed the Senate in the 2006 session, but on the last night of the session it stalled in the House. No vote was taken and H3 failed. Some House members said that for all the good H3 did, they simply would not vote for a tax change where even one Utahn paid $1 more.

Huntsman then said he'd "educate" House members for a few months then call a special session for H3. But last spring state economists discovered an error in the estimated cost of H3. The cost wasn't $70 million (an amount put aside in the new budget for income tax reform). It was more like $220 million.

It looked like income tax reform was dead for 2006.

But busy minds got going. And Huntsman and legislative leaders decided that offering a dual-track system was the best.

First off, there were no losers. You just figured your tax two different ways starting in the 2007 tax year and took the best deal.

While it's true there are no losers, next week in special session lawmakers will be picking a flat-rate 5.35 percent system that will greatly benefit rich Utahns.

While $40 million will be spread this year among all taxpayers — with a married couple getting $48 — come the 2007 tax year only around 5 percent of Utahns will be better off in the flat-rate system and so will be splitting up $30 million.

A goofy-looking chart passed out to legislators, showing state taxpayers as small red dots, makes it clear that most of those picking the flat-rate system are Utahns making $80,000 a year or more.

The more you make, in most cases, the more you get in tax cuts.

Some rich Utahns will be paying hundreds, if not thousands, of dollars less by picking the flat-rate system next year.

Early in this debate, House Speaker Greg Curtis, R-Sandy, said he and a number of other House Republicans didn't like that. (All House members are up for re-election this November.)

And in the original H3 tax plan that died in the House last session, a phase-out personal exemption provision ameliorated that help-the-rich part of a flat-rate tax plan.

However, through his constant drumming that a lower tax rate will drive business moguls to Utah, making the state more competitive, the governor rallied his GOP colleagues.

Now the dual-track plan is headed for approval.

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Some conservative legislators say come January's 2007 general session, large increases in Utah's income tax revenue could fund lowering the 5.35 percent rate. And as the flat-rate dips under 5 percent, the alternative flat-rate system will benefit more and more middle-income Utahns.

The wealthy will still get their benefits. But proponents say the new alternative will become a more politically acceptable system as regular Utah families see some flat-rate tax cut cash as well.


Deseret Morning News political editor Bob Bernick Jr. may be reached by e-mail at bbjr@desnews.com