UTAH FAIRTAX - BRIEF SURVEY
DOCUMENTS:
It is time for Utah to join those states that have no state income tax. The Utah FairTax would abolish the state income tax, and reduce taxes overall, but every household would still receive a refund. How is this possible? The short-lived tax reform bills that have recently come and gone in the legislature had part of the answer. By broadening the sales tax base, they would have cut the sales tax rate. But nothing would prevent that rate from creeping back up in the future. A better alternative would be to keep the sales tax rate about the same, including the lower rate on food, but completely abolish the state income tax instead. In addition to doing that, the Utah FairTax would also provide a monthly “prefund” – a fixed amount paid to each household ahead of time to offset the tax on basic necessities (i.e. up to the poverty line). The Utah FairTax would be simpler, flatter, and fairer than both the income tax and sales tax as they currently exist. But let’s address some of the potential objections to it:
“Services should not be taxed.” No one wants to pay or collect taxes on things that weren't taxed before. But by definition that is the only way to broaden the base, which is critical to the fairness and stability of any tax system. With the Utah FairTax, all Utah taxpayers would see an overall tax cut. As for taxation of services, there would be a minimum threshold, so the teenager that mows the lawn or the neighbor that does the occasional haircut would not have to collect the tax.
“Necessities should be exempted.” The food tax would remain at the current low rate of 1.75%. The gas tax would also be eliminated and replaced with a mileage-based fee when a vehicle is registered, resulting in a lower overall price at the pump. But the more that is exempted, the narrower the base, and the higher the rate. The majority of Utahns, and especially the poor, would see a greater benefit from having a higher prebate vs. a lower rate, even though that may seem counter-intuitive. It is because median household income is always lower than the mean (higher-income households pull the average up).
“The prefund is not really flat.” It is flat in the sense of being the same dollar amount per household, since it is intended to cover the tax on necessities only. However, those of lower income do get a greater benefit from it percentage-wise, since their household spending is less. As an example, assuming a 5% tax rate and $1K prefund ($80 per month), the "effective" tax rate would be 0% for $20K of annual household spending, 3% for $50K, 4% for $100K, 4.5% for $200K, and so forth. But unlike a graduated income tax, it could never exceed the nominal rate of 5%, it does not require the burdensome reporting of income, and as you can see, most people would pay far less than that maximum rate. Some think this is fair, while others reject it as a form of wealth redistribution. But if one just looks at it as not taxing necessities, then most would agree that it is fair.
“The Utah Constitution requires the income tax to fund education.” This is not quite correct. The Utah Constitution does require that all income tax revenue go to education, but it does not require that there be an income tax - it allows the Legislature to decide that. If the income tax were repealed, then education would be paid for out of the General Fund, just like everything else in the state budget.
Recent polling by the Grassroots Whisperer organization shows strong majority support for the Utah FairTax. Let your elected officials know that the time for fundamental tax reform in Utah has come!
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