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State individual income tax rates keep dropping

Gov. Huntsman’s proposal to lower individual income tax rates is based on a nationwide trend of the past twenty years. As capital becomes more mobile, interstate and international tax competition plays a greater role in economic development. A competitive tax structure is far more important to Utah’s economic development than subsidizing retail and professional sports stadiums.

The 50-state average top marginal tax rate -- including those states that do not impose individual income taxes -- has decreased by 25% since 1985, from 7.12% in 1985 to 5.34% in 2006.

In 1985, Utah’s top marginal rate was 7.75% which ranked 21st highest in the nation. In 2006, Utah’s top rate is 7.0%, which is 13th highest in the nation.

Rates are falling in western states as well. The average rate – including Nevada, Wyoming, and Washington which do not impose individual income taxes – has decreased from 6.0% in 1985 to 4.9% in 2006. Currently, of ten western states, only California, Oregon, and Idaho have higher individual income tax rates than Utah.

Source: Utah Taxpayers Association using data from CCH State Tax Handbook and the Federation of Tax Administrators

We forgot to mention that tax rates are not the only issue. Tax bases are equally important since tax yield is a function of both rates and bases.

One other thing. At least no one is seriously talking about raising tax rates as they did during the 1990s. Back then, there was talk about an 8% bracket "to stick it to the ultra rich".

Whatever tax cuts we get at the state level will be eaten up by tax hikes at the local level, and then some. It's already happening. When the dusts settles, our taxes will be higher than they are now.

You're right about the local tax hikes. West Valley, Murray, South Salt Lake and other have pushed through major tax increases. Look for Jordan School District to come back with another monster bond (they have no choice). Then there's the TRAX tax increase.

It's for the children.

Tax rates need to come down even further if the State wants to continue growing its economy. As a tax professional I read the other day that Utah is one of the highest taxed states in the country when you look at the big picture of state, local and sales taxes. I've seen people and businesses move out of state to escape this burden.

Why don't they create an exemption for Capital Gains taxes instead. It is a no brainer that businesses will not make a large capital investment in Utah when they can go next door, to Nevada, and not be charged an extra 7.0% capital gains tax.

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