Even though lawmakers are expected to give Utahns $220 million in tax cuts next year, a few well-to-do residents of the state will actually end up paying more income taxes.
The Senate passed what has become the "omnibus" tax bill Monday afternoon 27-2 — and then said that if the bill is approved by the House, a special session of the Legislature will have to be called to finalize some details.
Two Senate Democrats voted against SB223, complaining that they had little time to consider the GOP majority compromise, which reduces a number of taxes including that charged on food and cable TV services.
"In 20 minutes we have just passed the biggest tax change in our history," Senate Assistant Minority Whip Ed Mayne, D-West Valley, said after the vote. "I think everything's been thrown together so quickly."
Senate Majority Leader Curt Bramble, R-Provo, downplayed the need for a special session to repeal the existing tax code and said that did not indicate the tax plan was put together hastily.
"Ideally, this would have been reached much earlier in the session," Bramble said of the compromise with House leaders on tax cuts, hammered out in a series of late-night and weekend meetings behind closed doors. "It's very difficult to find consensus."
Both Bramble and Senate President John Valentine, R-Orem, labeled the tax-cut compromise "historic" and said it has been in the works for the three years lawmakers have been working on tax reform.
"This historic moment will be one we will look back to and say to ourselves that we did something that meant something," Valentine said, acknowledging there is still some "fine-tuning" to do.
It's up to Gov. Jon Huntsman Jr. to decide whether to call lawmakers back, and his spokesman, Mike Mower, said the governor will determine whether one is needed after the bill reaches his desk.
Mower said he wasn't concerned the bill might have been put together too fast. "Tax reform has been front and center for the governor and the Legislature for the past three years," he said.
And while GOP House leaders have more than a majority to pass the tax cut measure today, similar concerns about the compromise were raised in an open caucus Monday.
Rep. Wayne Harper, R-West Jordan, has been studying various income tax changes for two years — part of the time as co-chair of a special Task Reform Task Force.
While some parts of the package have been discussed before, Harper pointed out that only in the last several days has the whole plan come forward.
"I'm concerned about the lateness this is coming out," said Harper, who added he likely would vote against it.
Republican representatives also spent time in their caucus discussing the several hundred top-salary families that won't be seeing an income tax cut.
Mower said, though, that "when you include the sales tax reductions, even those few will see overall tax cuts."
The cobbled-together SB223 ended up being more than an inch thick, chock-full of numbers and percentages, reducing a number of taxes and beginning a whole new state personal income tax system — the so-called "Huntsman single-rate" system.
Republican leaders originally wanted the tax cut to take place in 2007. But they gave up on that idea because of the complexity of tax changes required.
So the various tax cuts will come Jan. 1, 2008. And the extra year will mean the already-tax-surplus state coffers will grow by another $146 million.
Here's how the 2008 tax cuts as outlined in SB223 fall out:
A new 5 percent personal income tax, with a number of tax credits allowed. All but a few hundred wealthy Utahns will see tax cuts, although those making $250,000 to $600,000 who now have big mortgages and large charitable gifts could see tax hikes of between $500 and $2,000 per family. That total tax cut will equal around $110 million.
The state 4.75 percent sales tax will drop to 4.65 percent. That tax cut equals $41 million.
The state sales tax on unprepared food drops from 2.75 percent to 1.75 percent, a tax cut of around $40 million.
And finally a variety of individual and business tax cuts that equal around $28 million.
Those other cuts would remove the sales tax on cable TV bills and on dental crowns or bridges, provide a renewable energy tax credit to individuals and businesses, create a new research and development credit and give a sales tax exemption for some mining equipment.
The bill also takes food sales out of the tax base of the so-called "boutique" sales taxes — like the ZAP (for zoos, arts and parks) and transit taxes. Although the resort community and rural hospital taxes are also eliminated from food purchases, the bill has provisions to make up those losses.
The same goes for transit districts, which now have a 0.25 percent sales tax. The districts will be able to raise — without having to go to a vote of the people — their sales tax to 0.30 percent to cover the approximately $16 million they would lose to keep it whole.
So, in Utah Transit Authority counties of Salt Lake, Davis and Weber, and parts of Utah County the overall state and local sales taxes will drop a bit, go up a bit for a net decrease of 0.05 percent. And the UTA will be able to continue a huge rail building program.
Huntsman has been pushing income tax "reform" for two years. One of his main goals is a lowering of the state tax rate to encourage business CEOs and other wealth-makers to come to Utah or to expand their operations here.
So it is a bit ironic that the governor's ultimate personal income tax reform system would actually raise taxes on the more well-to-do.
House Majority Leader Dave Clark, R-Santa Clara, told his caucus that some of those potential CEOs may see their state income taxes go up "about the cost of a big plasma TV."
However, while a small group in number, Clark said the group was likely an influential sub-section of Utah taxpayers — the business community's movers and shakers.
"I would term those increases as not significant, nor even moderate" considering how much money those families are making, said Clark.
Mower termed that group a "small percent" of taxpayers, and the tax bill provides such good benefits "that the bill offsets any small loses" the wealthy may see.
"The governor is very pleased with this omnibus tax plan," Mower added.
In 2006, Utahns were under the old 7 percent, multideduction state income tax system. In 2007, they can choose between a dual tax system, either the old system (with a slight rate reduction) or a 5.35 percent "flat-rate" system.
And in 2008, Utah will go to a single-rate system of 5 percent with a variety of tax credits.
Some GOP lawmakers were grumbling that one of the goals of "tax reform" was a simplier income tax system, and considering all the changes Utahns will see over three years is hardly that.
Valentine said the effect of the changes had to be postponed as "a pratical matter." The Senate president, a tax attorney, said both the state and the private sector were already in the midst of getting ready for the dual tax system.
Finally, legislators will change the state's budget cap law to exempt all transportation projects.
House budget chairman Rep. Ron Bigelow, R-West Valley, said leaders were finding ways to push tax surpluses into this or that road-building pot to get around the cap and roads should just be taken out of the spending-limit law.
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