clock menu more-arrow no yes

Filed under:

Utah Legislature: Most Utahns paying less under new 5% flat tax, study says

SALT LAKE CITY — Despite grumbling from some state income taxpayers over the last several years, a new study shows that most Utahns are paying less under the new 5 percent flat tax than they did under the old tax system.

The debate has gone on since 2006, with some arguing that middle-income Utahns were paying more and the wealthy paying a lot less.

But a new study of actual tax filings between 2005 and 2008 by the Office of Legislative Research and General Counsel shows that is not the case.

Like most tax studies, this one is complicated, with lots of charts, graphs and analysis.

Still, the study states the following:

Approximately 97 percent of tax returns paid the same or less under the new system in place in 2008 relative to the old system in place in 2005.

About 91 percent of tax returns paid the same or less under the new system in 2008 relative to the systems in place in 2006 and 2007.

The analysis is further complicated because Utah went through several steps, over several years, from the old progressive tax system, with a top rate of 7 percent (in 2005) to the 5 percent flat rate of 2008, including the 2007 tax year, where taxpayers could choose between the old system and the new system.

So, in some years between 2005 and 2008, individual taxpayers could have seen their taxes go up, only to finally go down again later.

A group of tax experts, in fact, was so upset over the loss of money to the state's Education Fund — all income taxes go toward funding public and higher education — and what they perceived as unfairness in the new tax that they started a citizen initiative a few years ago aimed at repealing the 5 percent tax and instigating a new, graduated income tax.

They failed to get the required voter signatures to get their measure on the 2008 ballot and are trying again this year. The group could not be reached for comment on the new study.

One of the major complaints about the new 5 percent flat-rate system is that high-income Utahns, who were paying 7 percent, were getting big tax cuts under the new system at 5 percent.

But there were other factors involved, the new study says.

And, in fact, the effective tax rate of those who made more than about $500,000 a year went up from 2005 to 2008. The effective tax rate is your federal adjusted gross income divided by how much state tax you end up paying.

Why all the confusion?

The report says: "Even though most taxpayers paid the same or less under the new system, changes in withholding and payments due or refunds issued with the annual tax return may have affected taxpayer perception of the change in tax liability."

To read the report and look at all of the charts and graphs, go to