Categorized | 2008 Enterprise Articles

Utah’s Tax Burden Increases but Ranking Improves

by Howard Stephenson

Utah’s total tax and fee burden as percent of personal income increased
from 15.76% in FY2005 (revised) to 16.08% in FY2006. Utah’s ranking,
however, improved from 5th highest to 8th highest.

Excluding fees, Utah’s tax burden, 11.34%, ranks 20^th , and is just
slightly above the national average of 11.24%.

When all state and local government revenue is included, Utah ranks 11th

The Utah Taxpayers Association annually calculates tax burdens for all
50 states using data from the US Census Bureau and the Bureau of
Economic Analysis. The association uses several tax and spending burden
measures to provide a complete picture of Utah’s position relative to
the rest of the nation. Utah ranks above the national average on all
major taxes except property taxes.

Utah’s tax burden increased in FY2006, largely due to a growing economy.

During economic expansions, individual and corporate income taxes and
sales taxes on business inputs increase faster than growth in personal
income. These revenues also decline faster than personal income during

The accompanying charts show Utah’s and the nation’s tax and fee burdens
as a percent of personal income from 1992 to 2006. During the 2006 and
2007 General Sessions, the Legislature cut Utah taxes by more than $400
million. About 85% of these tax cuts directly impacted individuals; 15%
impacted business. (See our March 2008 newsletter at <> for more details).
The impacts of these tax cuts will begin appearing in next year’s report.

Should voluntary fees be included in the analysis?

Fees should be included in tax burden analyses for the following
reasons: 1. Even if fees are “voluntary” such as tuition at public
universities, government still has an obligation to keep fees as low as
reasonably possible.

2. Even though fees are frequently a preferable method for financing
certain government functions, such as water and transportation, elected
officials can pretend to cut taxes or slow the growth in government by
increasing reliance on user fees. Governments frequently increase fees
to avoid increasing taxes.

States without individual income taxes generally have lower overall

As demonstrated in the accompanying chart, states without individual
income taxes generally have lower total tax and fee burdens. This
finding dispels the “balloon effect” which posits if one form of
taxation is low, total tax burden will always still be about average
because the low tax will be offset by higher taxes elsewhere. (It’s
called the “balloon effect” because when one end of a balloon is
squeezed, the other end gets bigger). While the “balloon effect” is
frequently observed, it is by no means universally observed as the
accompanying table demonstrates.

Nine states do not impose taxes on individual income. Two of these
states – Tennessee and New Hampshire – impose taxes on dividends and
interest. Two other states – Alaska and Wyoming – have higher tax
burdens and are not included in this analysis, because they export taxes
to other states through severance taxes on natural resources.

Four states do not impose state and local sales taxes: Delaware,
Montana, New Hampshire (which also does not impose an individual income
tax), and Oregon. Alaska does not impose a state sales tax, but many
local governments do. States that do not impose sales taxes tend to rank
in the middle of tax and fee burdens: Delaware, (22nd); Oregon, (24th);
Montana, 32nd).

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