Attacks escalate on flat tax plan

Gov. Jon Huntsman Jr.'s new $100 million flat-rate income tax proposal would push about as many Utahns as possible into the simplified system, his chief economist said Friday.

"This is it," the economist, Robert Spendlove, said of the proposal expected to attract about 60 percent of taxpayers. "In fact, to get more people to switch is very expensive. ... Eventually, it just gets into the billions of dollars."

But just days after Huntsman's tax-cutting package was unveiled as part of his $10.7 billion budget, there is rising opposition from some critics who claim it is not real tax reform and could — in the long run — prove even more chaotic than the current income tax system.

House Republicans already have said they want to triple the size of the proposed tax cut, although they haven't come up with any specifics. Spendlove said if all of the $300 million went to lowering the flat tax rate, for example, it would drop only to about 4.5 percent.

House Speaker Greg Curtis, R-Sandy, said Friday he's frustrated. "My constituents made it loud and clear they did not like the path we were on with income tax. They want to take the sales tax off food," Curtis said. "I'm frankly quite disappointed with the governor."

Earlier this year, lawmakers passed a new, "dual track" state income tax system set to take effect Jan. 1 that gives taxpayers a choice between switching to a 5.35 percent flat-rate with no deductions or staying with the current graduated system that has a top rate of nearly 7 percent and allows deductions for charitable giving and home mortgage interest.

However, the state's economy has continued to boom, boosting revenues by nearly $1.6 billion. In announcing his budget Tuesday, the governor said he wants to take advantage of the good times to finish his income tax reform.

His plan would not only lower the flat-tax rate to 5 percent — a number Huntsman said would encourage economic development by making the state more competitive — but also establish a tax credit aimed at getting lower-income Utahns to switch to the flat-rate system.

At the request of the Deseret Morning News, Huntsman's top economists worked out different scenarios for taxpayers — those who stay in the current graduated income tax system and those who would switch to a 5 percent flat rate system that includes tax credits.

They estimate that no one would actually pay more income tax and some low-income Utahns now paying nothing would receive a refund as a result of the proposed tax credit. And some of the biggest benefits would go to single taxpayers.