NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.



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F I S C A L I M P A C T R E P O R T





SPONSOR: Aragon DATE TYPED: 03/13/01 HB
SHORT TITLE: Reduce Low- and Middle-Income Tax Rates SB 766
ANALYST: Williams


REVENUE



Estimated Revenue
 Subsequent

Years Impact

 Recurring

or Non-Rec

 Fund

Affected

FY01 FY02
$ (64,300.0) $ (65,300.0) Recurring General Fund



(Parenthesis ( ) Indicate Revenue Decreases)



SOURCES OF INFORMATION



LFC Files

Taxation and Revenue Department



SUMMARY



Synopsis of Bill



The bill authorizes a reduction in personal income taxes.



The bill creates a zero bracket amount which would result in qualifying taxpayers avoiding filing. Zero bracket proposals typically impact lower income tax payers, while reducing general fund revenue on a recurring basis. TRD estimates 65,000 returns would be dropped from liability from this tax package. The zero bracket proposal is the same as that proposed by the Governor.



New personal income tax rates would be as follows: 2.0%, 3.0%, 4.5%, 5.5%, 7.0%, 7.9% and 8.2%, compared to the current: 1.7%, 3.2%, 4.7%, 6.0%, 7.1%, 7.9% and 8.2%. Note that the top rate does not drop. Rate cut proposals also reduce general fund revenue on a recurring basis.



A proposal also contains bracket changes. The bill is applicable beginning tax year 2001.



A table from the Taxation and Revenue fiscal impact report is attached to provide a basis for comparing current and proposed income brackets and tax rates.



FISCAL IMPLICATIONS



TRD has estimated that the proposed changes would decrease general fund revenues by $64,300.0 in FY02 and by $65,300.0 in FY03.



The fiscal impact analysis assumes the two technical corrections noted below are made.



The average per return reduction in personal income taxes is projected at $117. Lower income taxpayers would receive an average tax reduction of 33 percent, while the top bracket taxpayers receive a 2 percent reduction form current tax levels. The average married taxpayer receives a $171 per family decrease in personal income tax, while singles and head of household average $66 and $87, respectively.



ADMINISTRATIVE IMPLICATIONS

TRD reports that it can absorb the proposed changes within existing resources.



TECHNICAL ISSUES



DISTRIBUTION OF TAX REDUCTIONS



The TRD FIR provides information as to the distributional changes implied by the proposed tax cuts. The overall reductions by income groups, tax relief by group, share of taxpayers in each group and each group's share of tax relief are summarized in the attached table.



AW/ar/njw

Attachment