In what’s becoming an interesting microcosm of the entire taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. reform debate, Utah is debating a flat-rate income tax. Predictably, the debate centers on how to strip the tax code of distortionary tax preferences without imposing too much pain on political interest groups who benefit from the status quo—the classic tax problem of how to broaden tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. s and lower rates without comitting political suicide:
Thursday the LDS Church issued a new statement [saying]… “The state tax system should continue to provide tax deductionA tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state/local taxes paid, mortgage interest, and charitable contributions. s for charitable giving—including religious contributions. Charitable contributions help provide for society’s poor and needy, education and the arts, and other important social needs.”
But supporters of a pure flat-rate income tax say various studies—and history itself—show that doing away with the mortgage interest deductionThe mortgage interest deduction is an itemized deduction for interest paid on home mortgages. It reduces households’ taxable incomes and, consequently, their total taxes paid. The Tax Cuts and Jobs Act reduced the amount of principal and limited the types of loans that qualify for the deduction. doesn’t harm housing markets and eliminating the charitable deduction doesn’t harm charitable giving, either.
Brigham Young University business professor Gary Cornia… told the new Tax Reform Task Force on Thursday that a number of studies from around the world show that doing away with those deductions has little or no impact on how society operates in those areas.
Unfortunately, like the federal tax code, Utah’s tax code may be doomed for eternal complexity in the long run as well without some constitutional restraint on lawmaker’s ability to hand out tax preferences as rewards to political supporters:
“We did this, had many recommendations and changes” to the Utah tax code back in the mid-1980s, said Mark Buchi, a longtime tax expert and former state tax commissioner who worked on previous tax reform measures. “But over time, the reform eroded” as many citizens complained to their lawmakers about tax changes.
“And the (reforms) were taken away” by willing Legislatures, he said. (Full story here.)