All That Glitters Isn't Gold: Impact of Utah's Flat Tax Surprises Many

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Over the last three years Utah's tax structure has undergone major changes. In 2007, the state instituted a dual tax system that included one graduated and one flat rate income tax. Then in 2008 the state eliminated the dual tax system and replaced it with a five percent flat rate with two nonrefundable credits: one for retirement income and one to replace deductions and exemptions for low-income taxpayers.

There was much grumbling at the time about the complexity of all these major tax changes happening over such a short span of time. That grumbling is getting louder. This week the Deseret News is reporting on several problems with the new flat tax structure. Apparently, the 2008 state withholding tables were miscalculated and, more alarmingly, some folks are seeing dramatic increases that they did not expect. As former Utah Tax Commission economist Doug Macdonald says, "We were told that only a few people would pay more. It was like selling a used car -- those pushing the change (to a flat-rate tax) only talked about the good parts of the car, not the bad parts." Clearly all that glitters isn't gold.

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