Utah Sees Benefits Shortly After Enacting Flat Tax

Top Tax Rates TF

In 2006, the state of Utah phased in a 5% flat income tax rate for all taxpayers.  Since then, most taxpayers have seen their yearly tax bill to the state decrease, with very few actually seeing a higher tax bill.  Additionally, the Tax Foundation (a non-profit, non-partisan tax policy research group) has put Utah in the Top 10 in the 2013 Tax Climate Index, while Iowa sits in the Bottom 10.

This past legislative session, House Republicans attempted to reform the state’s convoluted, confusing, uncompetitive income tax system by creating a 4.5% flat income tax (House File 478).  Under this bill, Iowa taxpayers would have the option to pay the flat rate with no exemptions or credits, or keep the current system.  This bill would lower taxes for half a million Iowans while not raising taxes on anyone.  In fact, the most beneficiaries of HF 478 would be those making between $30,000 and $40,000 a year.

House File 478 is:

  • Simple
  • Fair
  • Flat

7 states in the country currently employ a flat tax, one of which is Utah.  A few years after Utah changed their tax system, a study came out proving that most Utahns were paying less under the flat tax system.

Bob Bernick Jr. of the Deseret News wrote:

Despite grumbling from some state income taxpayers over the last several years, a new study shows that most Utahns are paying less under the new 5 percent flat tax than they did under the old tax system.

The debate has gone on since 2006, with some arguing that middle-income Utahns were paying more and the wealthy paying a lot less.

But a new study of actual tax filings between 2005 and 2008 by the Office of Legislative Research and General Counsel shows that is not the case.

Like most tax studies, this one is complicated, with lots of charts, graphs and analysis.

Still, the study states the following:

  • Approximately 97 percent of tax returns paid the same or less under the new system in place in 2008 relative to the old system in place in 2005.
  • About 91 percent of tax returns paid the same or less under the new system in 2008 relative to the systems in place in 2006 and 2007.

Currently, Iowa has one of the highest top tax rates in the country (as seen in the map above).  Iowa’s tax system is confusing and costs taxpayers significant amounts of time and money to prepare their taxes every year.  Forbes Magazine reports that every year Americans spend 6.1 hours complying with the federal tax code.

House Republicans will continue to work to reduce the tax burden on Iowans and make the tax code simpler, fairer, and flatter.