Flat or deductions: Governor, some House members for it; Senate members remain leery

Published May 3, 2006 12:40 am
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House lawmakers and the governor are embracing a dual income tax system - allowing filers to choose between the existing system or a flat rate - to resuscitate the tax reform that collapsed in the last Legislature.

One thing threatens to stand in the way: the Utah Senate.

"We have serious concerns about a dual system if the goal of tax reform is to reduce volatility and provide a stable, predictable source of revenue for education," said Sen. Curt Bramble, chairman of the Revenue and Taxation Committee.

Bramble and Senate President John Valentine, both tax professionals, were irked Tuesday to be getting details on the plan from a reporter, rather than their House colleagues.

The dual plan, first broached by Rep. John Dougall, R-Highland, would offer Utah income taxpayers a choice between filing under the state's existing system with its myriad deductions and credits and top rate of 7 percent - or a "pure flat tax" with a 4.8 percent rate.

"Imagine the ability of the state of Utah to do economic development," said Rep. Wayne Harper, House chairman of the Revenue and Taxation Committee and a fan of the plan. "[As a chief executive] you could choose which income tax is best for your company, then choose which personal income tax is best for yourself. We would be the only state in the country to do that. We would be unique. It would further heighten our brand."

Dougall, who sponsored Gov. Jon Huntsman Jr.'s unsuccessful "flatter" tax proposal, said he suggested the dual-tax approach with House leaders as a way to get tax reform moving again.

"My point was, let's figure out a compromise rather than just standing around," Dougall said, emphasizing that no agreement has been reached among the House, Senate and governor. "This is just a concept. The analysis has not been done."

Democratic Rep. Pat Jones, who for three years unsuccessfully pushed a third choice in income tax reform that would shield working families from unfair tax burden while providing steady revenues for education, remains wary.

"This still has at least a $70 million hit to education," Jones said.

Valentine has no doubt the price tag would be even higher.

Some lawmakers are perplexed that the governor, who made tax simplification a foundation of his reform, is supporting a system they say would make filing vastly more complicated. Taxpayers would likely calculate their tax under both ways before choosing.

It also would make life more complicated for state budget writers, said Valentine. "It would be impossible to calculate the revenue forecast if citizens are allowed to flip-flop every year."

But Huntsman spokesman Mike Mower said the dual tax plan would make "the personal income tax rate not only competitive with other states, but a more stable source of funding."

"Rather than one size fits all, citizens will have a choice," Mower said. "Under this plan there would be no losers."

The dual tax plan is not a new idea, said Bramble, who with Harper, led a Tax Reform Task Force last summer.

"We talked about a dual system in the task force a year ago," Bramble said. "It was not well received," mainly because it would make revenue projections difficult.

The only way to make projections accurate would be to hold taxpayers to their choice for three to five years, Bramble said. But that has the potential for a huge controversy. "Can you imagine the angst if a citizen's circumstances change, but they are locked into a tax rate for another four years?"

Bramble is pushing to see the plan with some numbers at the May 17 meeting of the revenue and tax committee. But the distance the House has yet to travel was evident in that neither Bramble nor Valentine was aware the plan incorporates a true flat tax, and not the hybrid approach promoted in the last Legislature. "Right now, everyone's scratching their heads," Valentine said.

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