Welcome to The Senate Site

By Wayne Niederhauser
Utah State Senator, District 9

A recent Tribune article ("Many Utahns see taxes jump with new flat rate," April 2) highlighted concerns among some taxpayers about the impact of recent changes to the state individual income tax. Unfortunately, the article did little to clarify for taxpayers the changes that will actually be taking place. As sponsor of the bill enacting many of these changes, I believe it's important that taxpayers have accurate information.

The Utah Legislature has been working hard the past two years to reduce taxes. Taxes have been reduced by nearly $400 million, including significant cuts and changes to the state individual income tax. Taxpayers will likely notice these changes when completing their state individual income tax returns for tax year 2007 (generally filed by April 2008) and tax year 2008 (generally filed by April 2009).

For tax year 2007, Utahns will choose to pay their individual income tax either under a "flat tax" option at the rate of 5.35 percent with no deductions or under the traditional multi-rate system with various deductions. Taxpayers calculate their taxes under both methods, but only pay the lesser of the two amounts.

It's easy to understand that some taxpayers assume that the "flat tax" calculation for tax year 2007 will be the same as the new nonoptional "single-rate" system in place for tax years beginning in 2008. But this is not the case. The elective "flat tax" calculation for tax year 2007 is different than the new "single-rate" system.

The new "single-rate" system will tax income at a reduced rate of 5 percent and at the same time allow various tax credits to be subtracted from the amount of tax owed. Most filers will be able to claim one or more of the new nonrefundable credits, including: (a) a taxpayer tax credit that is calculated using federal personal exemptions and standard or itemized deductions, and (b) a retirement tax credit.

At the same time, Utah will abandon the traditional multi-rate system. Examining the single rate component of the new system without also considering the enacted tax credits provides a flawed view of actual tax amounts to be expected for tax year 2008.

The overall goal of the recent tax changes is to reduce income taxes for the people of Utah. Experts calculated that more than 90 percent of the taxpayers should see some degree of tax relief.

The changes also make Utah more economically competitive with some of our neighboring states. For example, Nevada and Wyoming have no income tax, while the top tax rates in Colorado (4.63 percent), Arizona (4.54 percent), and New Mexico (5.30 percent) are significantly below the top rate of nearly 7 percent with Utah's traditional multi-rate system.

In addition, the recent tax changes help reduce the volatility of income tax revenues, allowing for better year-to-year budgeting and providing a more stable revenue source for education.
More detailed information regarding the income tax changes (including links to sample tax calculations under the new system, a tax calculator, and a more detailed analysis of the tax changes) is available at the Legislature's Web site, www.le.utah.gov.


[This was first published as an op-ed in the Salt Lake Tribune.]

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