The biggest chunk, about 40%, of the tax relief under a proposal pushed by Utah’s Republican lawmakers would go to those making $113,000 a year and above. That’s about 20% of all income tax filers.
This top-salary tier would claim more of the $128 million cut for individual taxpayers than would the bottom 60% of the state’s earners, according to a legislative staff analysis of the plan lawmakers are readying for a possible December special session.
The state tax force crafting this proposal wants to slash income tax rates while at the same time increasing the tax on food and adding the sales tax to motor fuel purchases. And while the package does contain breaks targeted to low- and middle-income Utahns, some are still dismayed that the biggest winners would be the state’s wealthier residents.
“This just sort of seems like a weird, complicated tax shift that is going to disproportionately benefit people at the top,” said Bill Tibbitts, associate director of Crossroads Urban Center, an organization that advocates on poverty issues.
Others point out that the highest earners pay more in income taxes to begin with, so it makes sense that lowering the rate would put more money back in their pockets.
“Inadvertently, when you’re cutting taxes, those higher payers get a higher share of that tax cut,” said Howard Stephenson, president of the Utah Taxpayers Association. “But I think it’s safe to say they’re not getting more of the cut, proportionately, than they’re paying in taxes.”
Abby Osborne, chief of staff for the Utah House, reinforced that point.
“Yes, it is true that the highest earners will receive the largest part of the tax decrease,” she said. “However, they are the largest contributors.”
But drawing more tax revenue out of grocery sales and less out of paychecks tends to disadvantage the lower end of the income spectrum, House Minority Leader Brian King, D-Salt Lake City, said.
Lawmakers reduced the sales tax on food about a decade ago, partly in recognition that income tax cuts enacted at the time favored the wealthy, he said. The current proposal contemplates cutting income tax rates again, but this time, it also calls for hiking the tax on food from 1.75% to 4.85%.
Even with the proposed breaks, the plan is “still a significant movement of the tax burden from those who can comfortably pay," King said, “to those who are less able to pay.”
Thirty-two states exempt groceries from the sales tax, and Utah is one of six that tax food at a lower rate. Imposing the full sales tax on food would cost low- to middle-income families an additional $172 to $252 each year, according to Utahns Against Hunger.
But Sen. Lyle Hillyard, R-Logan, who’s co-chairing the state’s tax reform task force with House Majority Leader Francis Gibson, has argued a lower food tax is a poor way to ease the burden on lower-earning Utahns, since the benefit goes to consumers of all income levels and even to visitors from out of state.
Targeted tax breaks are a better way of achieving this goal, he’s argued, and the package he’s developed with Gibson, R-Mapleton, contains several of them — they’re recommending a grocery tax credit, an income tax credit for Social Security recipients and an expanded per-child exemption. At a task force meeting earlier this week, they also decided to include an earned income tax credit to address intergenerational poverty in the drafted legislation they’ll digest at a Nov. 7 meeting.
Matthew Weinstein of Voices for Utah Children concedes Hillyard’s point that the low food tax benefits rich and poor alike. But that logic also works against aspects of Hillyard’s plan, he says.
“That’s also an argument against having a big income tax rate cut, which is what produces such a big windfall for people at the top,” Weinstein said.
Rep. Joel Briscoe, who sits on the tax task force, said the disparity between the middle class and the rich has only grown in recent decades, a problem exacerbated by federal tax changes. Last year, the total tax rate for the wealthiest 400 Americans was lower than for any other income group, the Salt Lake City Democrat said, citing data presented in a recent New York Times column.
Utah leaders could counteract this shift, he said, by instituting progressive changes — taxing the wealthy at a higher rate, for instance, or making more of the state’s lowest earners exempt from the income tax.
“The gap between the top and bottom might not be quite as great in Utah as it is nationwide," Briscoe said, “but it’s still great.”
Including Utah, only nine states impose a flat income tax rate for all wage levels, according to the Tax Foundation, while most have graduated rates that scale up along with income. Of the 41 states that tax wages, Utah levies the eighth-lowest rate for top earners, according to the Tax Foundation’s Jared Walczak.
Derek Monson, vice president of policy for the conservative Sutherland Institute, contends that — despite the flat rate — Utah has a progressive tax structure because of credits and exemptions for lower-income residents. And the state’s move to a single income tax rate had a big payoff by helping it weather the recession, according to Stephenson.
“Just as 10 years ago, when we looked at restructuring the income tax, it has yielded the best economy in the nation, similarly by the visionary leadership of the Legislature, we can expect this tax proposal to sustain Utah’s economic leadership in the nation,” said Stephenson, a former state senator.
He and Monson agree that the chairmen’s proposal is a step in the right direction, delivering an estimated tax break of about $400 to a family of four making $60,000 a year.
Monson said, “Denying financial aid to low- and middle-income families because it helps the wealthy families, I’m not sure why that’s a good idea."