A proposal to raise the income tax on the richest 1.5 percent of Utahns died Wednesday in the Senate Revenue and Taxation Committee.
SB 104 – Amendments to Income Tax, sponsored by Senator Jim Dabakis (Democrat – Salt Lake City), increases the income tax levels of those who earn an income well above the statewide average.
Under the proposed bill, those who earn less than or equal to $250,000, the tax will remain at the current 5 percent flat tax. People who earn an amount greater than $250,000 but less than or equal to $1 million, the tax would be $12,500 plus 6% of state taxable income. For those whose income is greater than $1 million, the proposed tax is $57,500 plus 7% of state taxable income. If passed, an extra $178.8 million a year for education could have been raised.
“This would, in effect, allow those citizens who are enjoying Utah to put back a little more for education,” said Dabakis. He believes this is a necessary step to get education funding headed in the right direction. “We need a major, strong, total commitment so we are actually doing something about education and not just talking.”
Billy Hesterman, vice president of the Utah Taxpayers Association, contends that higher income tax levels are a deterrent to economic success.
“Studies that we’ve looked at have shown that taxes on income and wages reduce the incentive to work. Progressive income taxes, where higher income is taxed at higher rates, reduce the returns to education since high incomes are associated with high levels of education. It reduces the incentive to build human capital. Progressive taxation also reduces investment, risk-taking, and entrepreneurial activity since a disproportionately large share of these activities are done by high-income earners,” said Hesterman.
Chase Thomas, associate director of policy and advocacy at the Alliance for a Better Utah, said SB 104 could serve as a possible solution to the education funding crisis in Utah. The Salt Lake City-based advocacy group has made news in recent days for considering a lawsuit against the state of Utah to improve education funding.
“Our legislators have provided a plethora of excuses for their failure to provide our education system with the funds we all recognize it needs, but there is no excuse for them to not fulfill their constitutional and legislative mandates to provide an adequate K-12 public education system,” Thomas told the committee.
Representatives from the Utah League of Women Voters and Voices for Utah Children also spoke in favor of the bill.
Senate President Wayne Niederhauser (Republican – Sandy), who in 2008 sponsored the bill that lowered taxes to the current rate of 5 percent, said raising it would cause wealthy business owners to move to other states with lower taxes. “We can’t be raising the rate at this point to stay competitive with other states.”
Higher income tax rates will also lead to more volatility, according to Niederhauser. “Just raising the highest rate only creates more volatility in the revenue stream, that’s the bottom line, and will make it difficult for us to maintain a stable revenue [stream] to education.”
Dabakis made a motion to pass the bill out with a favorable recommendation. Senator Curt Bramble (Republican – Provo) then made a substitute motion to adjourn. The motion passed, thus shelving SB 104, presumably for the session.