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Tax Reform
by David Spackman
Tax reform is on the agenda. Former Governor Walker put forth 17 suggestions, and Governor Huntsman campaigned on it. My guess is that few changes will be made this legislative session. Here’s my contribution to the debate.
Walkers suggestions generally seem positive to me.
- Individual income tax: Going from 6 to 2 tax brackets is good. I especially like her Option 2 which would base Utah’s tax on federal gross income instead of federal taxable income (reduced by deduction of mortgage interest, charitable deductions, and dependents). The LDS church has in times past opposed such moves, and undoubtedly, many of you will too. But I’m against social engineering through tax policy, and we ought to be consistentÑeven if it means giving up our favorite deductions. Tithing is a flat tax with no exemptions or deductions. If it’s good enough for God, it ought to be good enough for us.
- Eliminate corporate income tax: Corporate income tax revenue as a percentage of the whole is decreasing as businesses base elsewhere or find other creative ways to avoid paying it. There will no doubt be many who will cry that businesses must pay their share. This is ridiculous since they simply pass the costs on to consumers, and it creates a hostile business environment which stifles economic growth.
- Eliminate or minimize RDAs. Utah cities and counties continue to abuse RDAs to steal retail business from their neighbors by giving tax incentives or to build pet projects like recreation centers. It’s a zero-sum shell game that diverts money from schools or other valid services, creates animosity between communities, violates property rights, and obscures accountability and representative control of public funds. This is one that could be passed this session, and I hope it is.
- The most rest are various tweaks to the current sales/income/property tax structure, the details of which I’m mostly ambivalent, but that supposedly meet their goals “based on sound tax policy principles of: 1) Revenue stability, 2) Equity, 3) Ease of compliance and administration, 4) Taxing final consumption and exempting production inputs.”
However, I think we should step back and ask if this 3 legged stool (sales/property/income) is the right stool. I believe in the KISS principle: Keep It Short and Simple. Nowhere is the saying, “the devil is in the details” more true than in politics and government. The more complicated a solutions is, the more prone it is to abuse, corruption, and favoritism. Here are my suggestions.
- Usage fees wherever feasible. Walker suggests we quit subsidizing water. I agree—we should pay market value for what we use. This could also apply to road usage—our annual registration fee should be based on number of miles driven, and type of vehicle. In theory, we do this now with gas taxes, which leads to my next suggestion.
- Eliminate sales (and gas) taxes altogether. I know many people favor consumption taxes over income taxes, but I do not for three reasons. 1. It is wrong to require businesses to be surrogate tax collectors, 2. All sorts of exceptions have to be made to keep it from being regressive (poor over pay as a percentage of their income) and avoid multiple layers of taxation in the production of good (another Walker suggestion I agree with). In other words, it violates the KISS principle, and 3. Nullifies the internet taxation question.
- Personal income tax as the primary means of funding government. Walker’s Option 2 explained above is the right idea (notice it observes the KISS principle).
- Eliminate all other taxes, including property taxes. Property taxes are another area that gets very complicated and does silly things like forcing retired people to sell their property because they can’t afford the taxes, and annual valuation battles between citizens and governments.
- Now I’m quite sure somebody will say, “But we have to sock it to these tourist coming in with sales (and gas) taxes.” Maybe we expand our ports of entry to include out of state traffic and charge them a fee for essential services (roads, police). Or maybe we look at this model: Goods and services are less expensive in Utah. More people come here to buy and do things. More businesses locate here because of the friendly business environment. Our businesses prosper, people are paid better, and hence they pay more income taxes.
For local (city and county) revenue, appropriate usage fees for services should be charged. The annual vehicle registration fee should include fees for county and city road maintenance. Then allow cities and counties an add-on income tax to the state income tax for the remainder of their needs.
The straightforwardness of this solution set has another benefit—by avoiding the complexities and obscurities of the current system and keeping the taxes as direct as possible, citizens will be more inclined to hold elected officials accountable in their spending of public funds.
And that may be the biggest reason these elected official will resist it.
Contact your legislators with your own thoughts on this matter. Many voices can make a difference—let yours be one of them.
Posted by Editor on January 24, 2005 05:51 AM
