Friday, June 23, 2006

Tax Reform -- the New Angle.

I'm curious if the Governor's main purpose in getting elected was to have the flat tax established so he could leave office as the Champion of Wealthy and the Elite. In a DesNews article on tax reform the newest attempt to get the flat tax passed has a new spin on it. A dual tax system! Just to make filing your income taxes a bit more complicating, the state of Utah is proposing as system where taxpayers choose from filing under the reduced 5% flat tax rate or filing under the current system and rate. The Guv seems to believe that this should please everyone, however some key members of the legislature are a little more skeptical.

"The lion's share of the $70 million tax cut allocated to the flat-tax returns would assuredly go to the wealthiest of Utahns— who don't get that much of a tax benefit from the current system's deductions and exemptions.
You would see the wealthiest among us, those making $250,000 a year and more, eating up most of that $70 million tax cut because they would choose to pay the lower rate. I have a real problem with that, and so would many of my House colleagues," Curtis said.

This latest proposal seems to be a blatant "wealthy" only tax cut. Instead of at least keeping all tax payers using the same tax computations, middle class tax payers get to keep the same tax burden as before or they get to choose a method or pay more under the "fairer-flatter" tax. I wish the Governor would advocate for a more modest approach like that of Steve Urquhart:

"Tax reform may sound sexy, but it is not necessary," said Urquhart. "What we need this year is a tax cut, drop the top rate a bit. Our current tax system is good, except that it takes too much money from taxpayers."

If I had any influence whatsoever on the goings on in the legislature, I would advocate for either a simple rate reduction under the current system or meaningful tax credits under the current system at the current tax rate.

The credits I would propose would consist of a nonrefundable child tax credit that could adequately account for the rising cost of raising a family, a credit for education expenses incurred in reaching under graduate and graduate degrees, and a continuation of any and all vehicle energy credits (such as the Utah State hybrid vehicle credit that is expired for'06). For wealthy taxpayers who are often phased out of a great deal of these types of credits, offer charitable giving credits on a non-phased out limited dollar-for-dollar basis which could prove beneficial on a number of issues. For instance, Steve Urquhart suggested that wealthy citizens could be encouraged to donate funds to help the state provide dental insurance to the general public. Offering a non-phased out, limited dollar-for-dollar credit would be one means of encouraging such altruism among those who carry such a large tax burden in our state.


Anonymous said...

It is nice to see a voice of reason that sees the "flater" tax for what it is, a gift to those in the top percentage of wage earners. The duel system should make people see just who benefits from a "flater" tax. If you have to elect the "old system" so you don't have a tax increase, it is a pretty clear indication that the the plan only benefits the wealthy.
I would add two suggestions to those who are looking for "tax reform". First, Index the brackets for inflation, which will slow tax creep. Second, raise the floor of taxable income. We currently tax poverty level income at the highest rate. If we want to give some tax releif make it so no one pays on the first 20,000 of their income. This would spread the inpact evenly on a dollar per capita basis, and provide meaningful tax relief to the working poor. This is a more equitable plan that simply lowing the rate a quarter of a percent. The effect of lowering the rate is that those at the top get the a much bigger tax cut than those at the bottem. Taking tax off the first 20,000 would effect rich and poor the same, and could result in giving a much larger tax cut to those at the lower end than you could if you simply lower the rate.

pramahaphil said...

Thank your for the analysis. Is this intended for use with the current federal system or a flat tax system?