opportunity and addres tax reform

The prospect of significantly changing a tax system is a rare occurrence that Utahns are currently facing. When such an opportunity presents itself, we need to seize the moment to address our most serious problems and challenges.

That is why six years ago the Tax Review Commission formed a task force to review the State Tax Commission's troubling data on tax burden and to develop policy options to improve the equity of the state's current taxing system.

At the time people realized that change was unlikely. Nevertheless, there was a strong commitment to develop a thoughtful consensus on possible policy choices so that when the time was right the state would be ready.

The task force's impressive membership included staff from Utah Foundation, Utah Taxpayers Association and the League of Women Voters. It also included a former state tax commissioner and a past tax commission deputy attorney general, a prior chairman of the Tax Review Commission, a noted private economist and a university economics professor.

I am proud to have chaired this effort and assured members that their work would not "gather dust" but would be utilized when the time was right. That time has arrived.

Task force members concluded that Utah's state and local taxes, in total, are going to be higher than national averages if funding for public services is to be comparable with other states. They also agreed that Utah's state and local tax structure did not distribute this higher tax burden proportionately among all taxpayers; rather lower- and middle-income taxpayers bear a greater burden.

They also found that this situation had become noticeably more inequitable over the previous 10 years. The task force determined that the major factors driving this disparity were the sales tax on food and the erosion of the state's income tax brackets.

More than 60 percent of Utah taxpayers are in the top income bracket, which begins at about $8,600 for a married couple and $4,300 for a single person. In most states with income tax systems, households at this income would be in the bottom tax bracket.

It was the task force's unanimous belief that Utah's balanced structure was being undermined and the basic framework of a broad-based tax system eroded. In response, the task force developed a number of policy options with emphasis on changing the state's income and sales tax systems.

Given these findings it is disappointing that the work of Gov. Olene Walker's tax reform committee and the legislative task force currently meeting on tax reform have focused their efforts on making a flat-rate income tax system even flatter and a low business tax burden even lower.

A flat tax system with a single rate applied to all has been promoted as "simple and fair." In practice it is simply unfair.

Such a tax system does not protect subsistence income from taxation. In general, a person is not assessed taxes on that part of his income below the poverty line. A flat tax does away with this protection. Even the so-called "flatter tax" merely protects this subsistence income from taxation for those families in poverty, but not for anyone else.

Also by imposing an income tax that is the same percentage at all income levels, the tax system loses its ability to offset the regressive nature of sales and property taxes that do not take into account a person's ability to pay.

Such an approach fails to consider the total burden of all government taxes on a household. This is particularly important in Utah, one of only a few states that still fully tax groceries. It is sadly ironic that recently proposed reforms contradict the income tax policy guidelines adopted by the Legislature in 1990 that support a moderately progressive income tax structure that shields subsistence income.

The primary purpose of a tax system is to raise sufficient revenues to fund government services. Taxpayers expect such a system to not only be efficient but also fair.

Although a competitive business tax structure is important, such taxation should not be given disproportionate attention. Generally, the cost of labor, land or transportation is more important to businesses than taxes. According to a 2004 national study by Ernst and Young of all 50 states, Utah already has one of the lowest business tax burdens while having one of the highest personal tax burdens.

Nevertheless, further business tax reductions are being considered, including eliminating the corporate income tax, exempting all business from paying existing sales taxes on business inputs, exempting business from paying new sales taxes on services and reducing the top income tax bracket to entice top corporate executives to Utah.

The cost of such reductions will be borne by higher personal taxes. Advocates of such change contend that such changes will generate the revenue to pay for them but evidence of this is lacking. Advocates of such change need to prove their case. If low business taxes generate income to more than cover the cost, why isn't the current low business tax environment sufficient?

Tax reform that favors a few while increasing the burden on those least able to afford it defies common sense principles of equity and does nothing to build public confidence in the integrity of the tax system.

Decision-makers need to be mindful that any tax reform that squanders the opportunity to address the sales tax on food and to restore tax equity will create public cynicism rather than the public trust necessary to operate a tax system in a democracy.

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Dorothy Pappas Owen was a member of the Tax Review Commission for 12 years and formerly chaired the Commission's Ad Hoc Task Force on Tax Burden. She has also served as a senior budget and planning analyst in the governor's office and for the past three years has served as a volunteer income tax assistant, helping low-income Utahns file their tax returns.