How would you react if your state income tax rate went from the current 7 percent to 11.4 percent?
A number of legislators are worried about that perception, even if - because of numerous other changes in deductions and exemptions - your actual tax bill stayed at about what it is today.Wednesday, a legislative committee discussed a bill sponsored by Sen. Howard Nielson, R-Provo, that would "drastically simplify" the current state income tax return.
The basic return would be reduced from three pages "to as little as three lines" on a one-page return, said Nielson.
Basically, Nielson would spread the current income tax brackets and increase the rates in the upper brackets.
To offset what would naturally be significant tax hikes for upper-bracket taxpayers, Nielson would boost the amount of federal tax paid one can deduct on state returns from 50 percent to 100 percent. He proposes other deduction and exemption changes as well.
The result, says the freshman senator, is about a wash. Nielsen is no stranger to tax-reform proposals. He previously served as speaker of the Utah House and U.S. representative from the 3rd Congressional District.
A family of four making $50,000 a year would save several hundred dollars in taxes. A family of four making $20,000 would save only about $100, but that would be a 63 percent reduction in state income tax for that family.
Meanwhile, a family of four making $200,000 a year (mainly because it could deduct 100 percent of its federal tax income tax on its state returns) would only see a state tax boost of about $100 a year, says Nielson.
"My idea is to make the income tax simpler and to stretch the brackets, which haven't been changed since the early 1970s," said Nielson.
He also devised his tax reform plan to be revenue neutral. That is, overall the state would take in about as much income tax with the change as it does today.
"If you (legislators) want to give a tax cut along the way, I'm the first to agree," he added.
That is exactly what House Minority Leader Dave Jones, D-Salt Lake City, wants to do. He told the Revenue and Taxation Interim Study Committee, co-chaired by Nielson, that he and other Democrats want to rebracket state income taxes and give a $50 million tax cut.
Next month legislative staffers will provide the committee with specific, "real-life" examples showing how Nielson's and Jones' plans will affect different individuals and families in different income levels.
But House Majority Whip Kevin Garn, R-Layton, is worried that Utahns will look at their state income tax forms, see they are paying a higher rate of income tax, and come unglued.
Don't you think, Garn asked Nielson, that people will get upset when they go to fill out their 1998 taxes in the spring of 1999 and see instead of paying 7 percent tax, they're paying 11.4 percent tax?
Not if they are paying attention; not if they actually compare what they paid the state in 1997 to what they owe in 1998, said Nielson. In many cases, it will be less. Even if it is more, "it will be less than $100." And in return they get a return they can understand and easily figure out, said Nielson.