Gov. Jon Huntsman Jr.'s $100 million income tax-cut bill flew through a Senate committee Wednesday, but while senators may like it, House Republicans still need some convincing.
SB223, sponsored by freshman Sen. Wayne Niederhauser, R-Sandy, passed the Senate Revenue and Taxation Committee unanimously.
However, in an open caucus last week, House Republicans ripped the bill, one representative saying that upper middle-income Utah families would be "taking it in the shorts" because SB223 doesn't help them much.
Indeed, when one senator asked who wouldn't make out well under SB223, a legislative staffer said that upper middle-income families with a large number of children, paying significant mortgage interest each year and contributing a lot of money to charities (like their church) would be left out of "tax reform" and would stay in the current multi-deduction state personal income tax system.
But Robert Spendlove, an economist in Huntsman's budget office, told the Senate committee that Huntsman likes SB223, in part, because through its lower tax rate, tax credits and per-person credits, 80 percent of all Utah taxpayers would pick the new flat-rate income tax system over the current multi-deduction system.
No one would actually pay more state personal income tax. "There are no winners or losers in this," Spendlove said.
Still, the question remains: Who would be getting a fairly big proportional tax cut in 2007 and who would be getting just a small tax reduction?
Spendlove said SB223 is geared to help low-to-middle-income people the most. However, top executives making big salaries would also be helped because their top tax rate under the current system (6.98 percent) would drop to 5 percent under the flat-rate tax option.
"This moves us much closer to a tax system that is more attractive, that is good for economic development and will attract more business decisionmakers" to Utah, said Spendlove.
It appears, however, that big LDS families carrying a large mortgage would not be getting much tax reduction under SB223 — and that has some House Republicans balking at Huntsman's new income tax plan.
In addition, LDS Church leaders have said that whatever personal income tax changes are made, there should still be incentives for charitable giving. If SB223 really would move 80 percent of Utahns into the flat-rate tax system — that has no deduction for charitable giving — then only 20 percent of tax filers would be under the old tax system, which gives charitable deductions.
More than 80 percent of legislators are Mormon. Asked to comment on SB223, the public relations department for The Church of Jesus Christ of Latter-day Saints repeated its previous statement on the benefits of charitable giving, adding that no further clarifications would be coming.
The bill would give a $102 million tax cut in 2007, a $105 million tax cut in 2008.
Huntsman's recommended budget for next year contains just a $100 million tax cut. Senate Republicans are calling for a $150 million tax reduction, while House Republicans want a $300 million tax cut.
Those GOP lawmakers trying to support their governor say that next week's updated tax revenue forecasts will bring maybe $100 million more in tax growth.
That will allow other, non-income tax cuts to be considered. And perhaps large LDS families will come out better when those "targeted" tax cuts — yet to be decided — take place.
But others just say that SB223 moves in the wrong tax-reform direction — it is more complex and more unfair than other alternatives.
Spendlove countered the claim of complexity, saying that "three simple" mathematical computations can lead a tax filer to find out his tax under SB223.
Perhaps, but just explaining SB223 is difficult:
The flat-rate income tax rate would be just 5 percent, competitive with the top rates in surrounding Western states.
In 2007, a single person would get a $321 non-refundable tax credit. Likewise, married filing separately would each get a $321 credit. A single head of household would get a $471 credit. A married couple filing jointly would get a $642 credit.
Or, each filer could take 6 percent of the federal standard or itemized deductions, whichever is a greater tax credit than those specific dollar amounts listed above.
In addition, each filer gets a per-person nonrefundable personal exemption credit. That would be a per-person credit of $153 in 2007. For a married couple with two children at home, that would be $612.
But, all these credits phase out as your income rises. For a family of four making $75,000 a year, the total credits equal $549 — and so your tax owed is reduced by that amount. And in 2007 that family would pay an income tax bill of $3,201, a handout accompanying SB223 shows.
Since lower-income Utahns would get the full, or the bulk, of tax credits, Sarah Wilhelm of Voices for Utah Children said her group supports SB223.
"It goes a long way in helping families just above the poverty line," she said. "Their tax burden would go down under this bill." Her group "would love to see this be a refundable credit" — where people with no income tax liability would actually get a check from the state.
"These families are still paying a large part of their incomes in other taxes" — like sales and property taxes, she said.
E-mail: bbjr@desnews.com