House committee advances $279 million tax cut

A major tax-cutting bill passed out of committee today and now goes to the House floor.

HB123 would cut state income taxes by $102 million and trim state sales taxes on food by $176 million. It would be a $279 million tax cut from ongoing funds this year.

"This continues the tax reform started last year," said sponsor Rep. John Dougall, R-Highland.

All Republicans on the on the House Revenue and Taxation Committee voted to advance it; Democrats voted against it, saying it was too early in the session to adopt such a large tax-cutting bill.

Public education officials and low-income advocates spoke against the measure, even though it would eliminate the state's share (2.75 percent) of the sales tax on food.

"Who does this benefit?" asked Doug Macdonald, head of Utah Issues, a low-income advocacy group. Saying he likes the food tax part, Macdonald, a former chief economist for the state Tax Commission, said on the income tax portion a low-income single mom with two children, would get a small tax cut while wealthy Utahns would end up with big tax cuts.

The old income tax system would see on average a 1-percent reduction, while the new flat rate alternative system would see an 8-percent reduction, said Macdonald.

HB123 would cut the top rate on the old multi-exemption personal income tax system from 6.98 percent to 6.9 percent. The new alternative flat rate system's rate would go from 5.35 percent to 4.9 percent.

In addition a "sales tax credit" on the flat tax would give single taxpayers a $237.50 credit, married folks a $475 credit. The credits would come out of the General Fund, which is fueled by the sales tax. The income tax rate cuts would come out of the Uniform School Fund, into which all income taxes flow.

Dougall said that the 6.98 percent reduction to 6.9 percent takes up about 40 percent of the tax cut, while reducing the 5.35 percent flat rate reduction to 4.9 percent takes up about 60 percent.

Sarah Wilhelm of Voices for Utah Children said it is clear that most low-income families will get a percentage smaller tax cut than wealthier families, which raises the question of how fair HB123 actually will be.

Tax Commissioner Bruce Johnson said the current two-tier system is "a political solution." Based on pure tax policy, it is a bad system, and efforts should be made to go to just the flat rate system and junk the old multi-exemption system.

But Rep. Greg Hughes, R-Draper, said no one believed there could be real tax reform a few years ago, yet today the state is on the verge of great tax relief and real reform. And the Legislature should take the chance that HB123 and other bills, he said.

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