Democrats, buoyed by gains in the Utah House and Senate last election, want to restructure the state's income tax, giving breaks to those making $65,000 a year or less, making wealthier Utahns pay more.
"Under our plan, 90 percent of Utahns would get a tax break," said Democratic Party Chairman Peter Billings Jr. "Only 10 percent would pay more. But, when you take into consideration how inflation has warped the state's taxation since 1973, those 10 percent who would pay more still will not have had their taxes increased as much as the state's middle class has over the last 15 years."Wednesday, Billings, Sen. Omar Bunnell, D-Price, and Rep. Grant Protzman, D-North Ogden, laid out the latest income tax plan by the minority party. It's not much different than a Democrat plan introduced in the 1990 Legislature, a proposal that went absolutely nowhere in the Republican-dominated body.
But Billings, Bunnell and Protzman think 1991 may be different.
First, the Democrats say they showed so well in the Nov. 6 election that residents and Republicans may now listen to them.
Second, GOP Gov. Norm Bangerter has already announced he won't seek re-election in 1992, leading Protzman to say, "The governor can now step back from political strings of the past and be a statesman, seeking (tax) fairness for all."
But key to the Democrats' plan is the removal of the partial deduction allowed on state income tax returns for federal taxes paid. Republicans agreed to a total removal of that deduction as part of the 1987 huge tax increase. But they caught heck from well-heeled GOP supporters who saw their state taxes jump drastically.
When tax surpluses started building in 1988, Bangerter did an about face and has since supported a two-step, partial re-instatement of that deduction as part of a $100-million-plus tax reduction plan. Now, Utahns can deduct on their state returns 50 percent of federal income tax paid. Since wealthier Utahns pay more in federal tax, they can deduct more on their state returns. Thus, the deduction is regressive, giving a bigger tax break to wealthier Utahns than poorer Utahns.
Bangerter and Republicans argue that the federal deduction is an economic incentive, enticing wealthy business owners to expand or locate in Utah. "That's foolishness," counters Bunnell. "Only six states give that deduction." Adds Protzman, "Many surveys of business leaders show that taxation ranks between seventh and 14th on their list of critical issuses in deciding where to locate a business. (The federal deduction) is just not that important."
"Republicans have always been willing to look at tax reform and relief," said Rep. Craig Moody, R-Sandy, who will be House speaker in the 1991 session. "But you ask if we are interested in looking at placing a tax on a tax - which is what doing away with that (federal) deduction means. No, we're not."
Democrats say no one can seriously argue Utah's state income taxes are fair. The tax brackets haven't been changed since 1973. Inflation has pushed most taxpayers into the top bracket - $7,500 of taxable income taxed at 7 percent. Such a flat-rate tax means that wealthier Utahns pay a much smaller part of their income to taxes than poorer Utahns.
"The general principle of income tax is progressiveness," said Billings. "The more one makes, the higher percent of tax he pays. That's just the opposite in Utah."
The Democratic plan is relatively simple. Double the current tax brackets while keeping the tax rate the same. For example, the top bracket would go from $7,500 a year at 7 percent rate to $15,000 at 7 percent rate. That would result in lower taxes on the first $15,000 earned and a $75 million loss in income tax revenue to the state.
To make up for that loss, the 50 percent deduction allowed on state returns for federal tax paid would be eliminated, as it was in 1987. That would bring an additional $80 million into state coffers - making the overall plan revenue neutral to the state, said Billings.
The break even point for a family of four is $65,000, says Protzman. (See chart). A family making $20,000 a year would see a 19.3 percent decrease in their state income taxes, a family making $150,000 a year would see a 9.8 percent increase.
But, argues Billings, taken in the context of income tax increase brought on by inflation since 1973, the middle-class family making $30,000 a year has seen its state income tax increase by 35 percent since 1973, while the family making $150,000 a year has only seen its income taxes go up 5 percent.
Thus, a tax increase now on the wealthier Utahns just makes up for "tax breaks" given for 15 years. In addition, when the new tax increase on the wealthy is added in, middle-income Utahns will still have seen a greater tax increase since 1973 than wealthy Utahns would see under the Democrat plan, Billings said.
Democrats will have further suggestions in the coming weeks on how to rework the corporate income tax and sales tax to make them fairer, Billings promised.