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Show Automatic Tax Hike Is Reflected in Inflation lnl'ation results In an automatic tax hike, changes the traditional concepts of equity in the tax structure, and all of this occurs without notice and without any explicit revision of the tax laws, This was the conclusion reached by Utah Foundation, the private tax research organization, in an analyses of the effect of Inflation on Utah's income tax. The study points out that the progressive structure of state and federal income tax laws assure that tax bills rise much faster than the rate of Inflation. In periods of high inflation, such as we have been experiencing recently, the impact of this principle can be very significant. In a specific example, the reports note that a family of four which had a 1973 gross income of 10,000 would have paid 1905 in federal Income taxes and $162 in state income taxes. If this same family had received an 11 percent cost of living salary Increase In 1974, its federal tax burden would have risen to $1,063 and state income taxes would have climbed to $204. In other words, a family which received an 11 percent income adjustment In 1974 because of inflation, would have to pay 20 percent more In Federal Income taxes and 26 percent more in state Income taxes. Because of this higher tax burden the overall purchasing power of the family would have declined in 1974, even though it had received a salary adjustment designed to compenstae for inflation. Foundation analysts observe that inflation also can push up the tax bill for businesses by taxing "phantom profits" created by rises In the value of business inventories. These higher taxes must be paid even though the ultimate effect of inflation often is to raise personnel and material costs, reduce product demand, and squeeze long-range profit margins. There are several reasons accounting for the tax hikes resulting from Inflation. First, personal exemptions, maximum standard deductions, and low Income allowances are all fixed in amount. When money incomes rise because of inflation, all of the Increase is subject to taxation. Furthermore, Income Increases resulting from inflation tend to push Individuals into new tax brackets where higher rates apply. Several measures now before the Utah Legislature would increase income tax rates In order to raise an added $12-13 million to make up the "short fall" in revenue that occurred when Utah changed its state income tax law in 1973 to simplify tax reporting. The Foundation study emphasized that the $12 million shortfall In revenue did not represent an actual reduction in state tax collections, but rather a reduction from earlier income tax estimates. |