A $110 million income tax reduction plan floated by GOP Gov. Jon Huntsman Jr. and liked by a number of GOP senators hit the rocks Thursday in the House Republican caucus.
After parts of Huntsman's plans — embodied in SB223 sponsored by Sen. Wayne Niederhauser, R-Sandy — were roundly criticized by a number of House Republicans, GOP leaders said they would continue working out compromises with Huntsman and senators.
The governor's plan is a continuation of a new flat-rate income tax system pushed through a summer special legislative session, said Rep. Jim Dunnigan, R-Taylorsville, only worse.
"The upper- and lower-income residents get most" of the tax relief, he said. "The upper middle class took it in the shorts (with last year's flat-rate tax plan), and it's the same with this one."
As the upper-middle-income taxpayers "keep taking it in the shorts, they're not going to have any shorts left," he said.
No one would see a tax hike under SB223 and other income tax bills, but some groups of taxpayers would see less of a percent reduction than others.
Where are the good policy decisions reflected in Huntsman's new idea? Dunnigan asked. Looking through three different pages of complicated tax changes, he added: "Where is this simpler and easier" for tax filers?
Several other Republicans said Utah's current tax system, with a number of deductions and exemptions — like for mortgage interest and charitable giving — has worked pretty well for 80 years.
"It is generating a lot of revenues for education," said Rep. Kory Holdaway, R-Taylorsville.
House Majority Leader Dave Clark, R-Santa Clara, said SB223 provided so many tax advantages to various income groups that 80 percent of Utah taxpayers would move over to the new flat-rate system in 2007. With a flat-tax rate of 5 percent, that would make Utah more competitive with surrounding western states and stimulate Utah's economy, goes the governor's thinking, he added.
But, said Rep. Steve Mascaro, R-West Jordan, the effective tax rate of most Utahns is 5 percent now under the old personal income tax system.
Rep. Wayne Harper, R-West Jordan, a leader in tax reform who has carried legislative water for Huntsman before, said he would have nothing to do with SB223.
"This is 180 degrees away from a real fairer, flatter income tax," Harper said, using the catch phrase that Huntsman has often used in asking for a flat-rate tax alternative.
SB223 is complicated. Basically, it provides $110 million in income tax relief.
It lowers the new flat-rate from 5.35 percent to 5 percent. It provides a personal exemption credit of $290 for a single filer, $430 for a single head of household and a $580 credit for marrieds filing jointly. Or, you can take 6 percent of your federal itemized deductions, whichever is greater. Each person in the family also gets a $135 credit. Figure all that out and times it by 5 percent and that's your state tax liability.
The tax credits phase out as your income rises. A dad and mom and two kids making $90,000 a year would get only a $4 credit, while the same family making $30,000 a year would get a $1,084 tax credit.
The $90,000-a-year family would still pay less state income tax because their tax rate would go from 5.35 percent to 5 percent. But the upper-income household would not see the percent in tax decrease that a poorer family would see.
Senate Republicans met in closed caucus Thursday to discuss tax cuts. Senate President John Valentine, R-Orem, said the Niederhauser bill is being "put forward as the Senate position," even though there are some questions about whether the $110 million fiscal note is too high.
Valentine said senators want to allocate $110 million for income tax cuts and, if a review of the bill determines it doesn't add up to that much, the numbers will be adjusted accordingly.
There was disagreement in the Senate caucus, he said, over the $150 million in tax cuts adopted by the Senate GOP at the start of the session. Right now, Valentine said, there is only support in the caucus for the $110 million in income tax cuts and another $40 million in business tax credits.
Although the Senate Republicans have said they'll consider the House proposal to further reduce the sales tax on food by eliminating transit and other so-called "boutique" taxes that are locally assessed, they would have to agree first to a higher level of tax cuts.
Contributing: Lisa Riley Roche