Sunday, March 11, 2007

The New Tax System -- (Hat Tip: Utah Taxpayers Association, Tyler Farrer)

Thanks to Tyler Farrer reminding me of the Utah State Taxpayers Association Blog, The folks over at the UTA have provided a comprehensive outline of the new tax system. Here is the outline they provided:

"1. Utah’s previous top marginal rate of 7% (reduced to 6.98% for one year) will be replaced by a single rate of 5%. This will be the first time in recent memory, if ever, that Utah's individual income tax rate has been lower than the national average (currently 5.3%, non-weighted). However, a broader tax base will ensure that Utah's individual income tax burden as a percent of personal income will remain above the national average.

2. The new system will not have tax brackets.

3. Moderate progressivity will be maintained by offering non-refundable credits that are phased out as income increases.

4. Credits are phased out at a rate of 1.3 cents per dollar of adjusted gross income in excess of $24,000 for married households and $12,000 for singles. Since the credits are completely phased out at high income levels, Utah’s new system will be a 5% flat tax for high income households.

5. Taxpayers will be able to choose a non-refundable credit based on either 6% of the federal standard deduction (approximately $10,900 in TY2008) or 6% of federal itemized deductions (excluding Utah income taxes paid).

6. Taxpayers will be able to claim non-refundable credits for each household member equal to 4.5% of the federal personal exemption (or 6% of 75% of the federal personal exemption). The federal personal exemption will be about $3,500 in TY2008.

7. Existing credits such as historic preservation, renewable energy, and several others that appear on the TC-40S form and are reported on lines 20 and 30 of the TC-40 will not be impacted by these changes."

I am pretty pleased with the new tax structure. The legislature has provided a solid tax cut using a flat tax structure. I'm pretty confident that a large majority will benefit from the proposed legislation. I spent time to make a comparative spreadsheet on Google Documents -- Give it a try at Flat Tax Vs. Regular Tax.

2 comments:

Utah Taxpayer said...

We are putting together an analysis of how the recent tax changes impact a family of four of various incomes. We will include changes in sales taxes as well.

We'll compare the new system with the system of two years ago before all of the changes. When comparing the new system with the old system, we'll use TY2008 parameters in both cases (standard deduction, personal exemptions)

Utah Taxpayer said...

Here's our new report on the tax changes for a Utah family of four.

http://www.utahtaxpayers.org/email_campaign/taxing%20times/taxchanges.htm