So the follow on to the Tax date is the fact that we paid taxes this evening. This year Utah citizens have the option of either a flat tax rate of 5.35% or the standard 7% rate with deductions. The population of Utah is made up of a large number of members of the LDS church who pay a ‘flat’ 10% of their income as tithing. Therefore, I am sure that the 5.35% seems very appealing – even divine given its similarity to the tithing structure. However, I would be very interested in the overall effect of this tax on the general population. In my personal case the flat tax would have resulted in an increase of more than $1,000. Even though 5.35% is a smaller number than 7% the net result is a greater portion of my income going to the state. I don’t think that my situation is much different than many Utahns so I wonder if others would also be adversely affected. Given that the country is moving towards recession now is not the time to increase taxes. I think that the intent of the flat tax is not only to simplify the tax structure, but also to reduce the tax burden. However, it fails on the later part. I think that the flat tax will disproportionally benefit the wealthy. Consider the constituency that benefits from tax deductions – families with children, home owners and those who tend to donate to charity (like churches). Those who are wealthy benefit from these deductions as well, but the deductions will constitute a smaller percent of their income forcing them to pay 7% on when the deductions stop helping. Under the flat tax their responsibility would drop to 5.35% on the greater part of their income.
These are my guesses. I would be interested to see an actual study that could help outline who will benefit and who will be adversely affected by the new tax structure. Utahns will have the chance to chose their tax system in November. It would be nice to have some hard facts.
Update: Here’s one study