The Tax Reform Task Force proposal, approved Wednesday by the Revenue and Taxation Interim Committee, is a hybrid of two previous "flatter" tax plans, including one proposed by Gov. Jon Huntsman Jr., and hence is dubbed "H3."
The exact tax rate - which would be the same, or flat, for every taxpayer - has yet to be set. But it would bring the state's 7 percent personal income tax rate down to 5 percent or less, which supporterssay would make Utah competitive with surrounding states in attracting industry.
But retirees, low-income and many working families could see their income tax rise, unless protections are built in, advocates say.
Any flat tax proposal, they say, is an ominous change in philosophy from a graduated income tax structure.
"We see a lot of red flags," said Sarah Wilhelm, an analyst for Voices of Utah Children. "We are moving from a basically pro- gressive structure to a basically regressive one. We have to make sure it protects poverty income."
Without at least adding indexing for inflation, over time the poor could wind up carrying an unfair burden, Wilhelm said.
Sen. Curt Bramble, R-Provo, backed Wilhelm's suggestion to factor inflation into the plan's low-income credits.
The bill's sponsor, Rep. John Dougall, R-Highland, says the flat tax would simplify the tax system, broaden the tax base and stabilize revenue swings.
Dougall explained that by flattening the rate, the state's record-breaking surplus could be returned to taxpayers. A 4.8 percent rate, for instance, would provide a $20 million to $60 million tax break, he said.
The committee advanced several tax reform measures, including:
l A unified statewide sales tax rate of 6.4 percent that would allow Utah to glean uncollected tax on national online and catalog sales.
l Two bills sponsored by business lobbyist and Sen. Howard Stephenson, R-Draper, that would give an additional $46 million in tax breaks to mining and high technology industries.
l A tax change that would put satellite and cable television providers on equal footing on franchise tax credits - costing the state $7 million in revenues.
