Poor and middle-income Utahns pay more of their income for taxes than do the rich, study says

A portion of the 1040 U.S. Individual Income Tax Return form for 2018 is displayed, Tuesday, July 24, 2018, in New York. The $1.5-trillion tax overhaul includes the end of a 75-year-old deduction on alimony payments. (AP Photo/Mark Lennihan)

Low- and middle-income Utahns pay a significantly bigger share of their income for taxes than do the rich, a new study says.

The poorest 20 percent of Utah households — which earn less than $23,000 a year — pay 7.53 percent of their income for taxes. The top 1 percent pay 6.68 percent, says the study by the Institute on Taxation and Economic Policy and Voices for Utah Children.

Meanwhile, the middle 60 percent of Utahns pay an average tax rate of 8.3 percent.

The study looked at similar statistics in all 50 states — and included a “tax inequality index.” It said Utah has the 40th most unfair state and local tax system in the country, and that incomes are more unequal in Utah after state and local taxes are collected than before.

“Rising income inequality is unconscionable, and it is certainly a problem that local, state and federal lawmakers should address,” said Meg Wiehe, deputy director of ITEP and an author of the study.

“It’s reasonable to expect the highest-income residents and corporations to pay their fair share of state and local taxes, said Patrice Schell of Voices for Utah Children. “It only makes sense since the wealthiest Utahns have benefitted most from our booming economy.”

The groups said Utah’s overall tax system is more unfair than most because it relies more heavily on sales and excise taxes than on personal income tax. With income tax, the higher one’s income the higher the effective tax rate tends to be. The poor tend to spend high percentages of their income on necessities, and the sales tax on them, while the wealthy spend lower percentages of their income on them.

Also, the groups said that recent property taxes on the state and local level hurt lower-income groups because the poor pay the highest share of their income of any group for property taxes.

Schell urged, “Utah should become the 30th state to enact its own earned-income tax credit, which would lower taxes for the lowest income Utahns and thus make our tax system less regressive.” Such credits can give the poor refunds that are greater than the taxes they actually owed.

The study also warns that if the nation fails to address growing income inequality, states will have difficulty raising the revenue they need over time.

The more income that goes to the wealthy (and the lower a state’s overall tax rate on the wealthy), the slower a state’s revenue grows over time, the groups said.

Return to Story