Flat Tax Debate Rages in Utah

May 27, 2005

In what’s becoming an interesting microcosm of the entire tax 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 bases 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 deductions 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 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.)

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