SB 0551 - Fiscal Note

Fiscal Note - SB 0551 - Raises the Dependency Exemption From $400 to $800

L.R. NO.  2136-03
BILL NO.  SCS for SB 551 and 639
SUBJECT:  Child; Income tax; Taxation
TYPE:     Original
DATE:     February 5, 1996


                              FISCAL SUMMARY

                    ESTIMATED NET EFFECT ON STATE FUNDS

FUND AFFECTED                 FY 1997          FY 1998          FY 1999

General Revenue         ($16,483,351)    ($37,054,339)    ($37,365,244)

Total Estimated
Net Effect on All
State Funds             ($16,483,351)    ($37,054,339)    ($37,365,244)

                   ESTIMATED NET EFFECT ON FEDERAL FUNDS

FUND AFFECTED                 FY 1997          FY 1998          FY 1999

None

Total Estimated
Net Effect on All
Federal Funds                      $0               $0              $0

                    ESTIMATED NET EFFECT ON LOCAL FUNDS

FUND AFFECTED                 FY 1997          FY 1998          FY 1999

Local Government                   $0               $0               $0


                              FISCAL ANALYSIS

ASSUMPTION

Officials of the Department of Revenue assumes this proposal would have
minimal impact on their agency. Revisions would be completed by existing
staff.

Officials of the Office of Administration have assumed that this proposal
would have an estimated impact of approximately $33 million annually. The
estimate is based on State of Missouri Individual Income Tax data, data from
Tax Expenditure Report and population projections from the State Demographer.
In calculating their estimate, OA staff assumed a marginal tax rate of 6%.

Oversight assumes the estimates for this proposal by the Office of
Administration staff for FY 1997 do reflect the possibility of reduced
withholding and estimated income tax payments for the first six months of
calendar year 1997.

Oversight has not estimated or included a potential loss to the General
Revenue Fund for the effects of taxpayers' corresponding increase in federal
income taxes which in turn would result in a slight reduction to income taxes
paid to the State of Missouri. Factors which would influence this amount
include the ability of the taxpayer to itemize deductions, the income level
of the taxpayer and the limitation of the federal income tax deduction on the
Missouri return.

Officials of the Department of Elementary and Secondary Education (DES)
report that having any additional income tax deduction would cause a
reduction in state revenue. DES staff estimate the number of students
enrolled in private schools in grade 9-12 is equal to 24,537.

In a similar proposal officials of the Department of Elementary and Secondary
Education stated that there is a possibility of an increase in attendance in
private schools. If this occurs, there would be the possibility of fewer
dollars for distribution to local school districts.

Oversight assumes that individuals would adjust their withholdings
immediately in order to take advantage of the tax deduction provided by this
proposal. Oversight assumes the number of individuals claiming and level of
deductions stabilizes in the third full fiscal year of implementation.
Oversight has based its estimates on the number of students in private
schools that pay tuition times $2500 and used the maximum state income tax
rate of 6% to estimate the loss to General Revenue. Oversight assumed
approximately 27,509 students for FY 1997, 29,182 for FY 1998 and 30,819 for
FY 1999.


FISCAL IMPACT - State Government      FY 1997        FY 1998        FY 1999
                                     (10 Mo.)
Loss to General Revenue Fund
   Increased Dependency
     Deduction                  ($13,044,726)  ($32,677,039)  ($32,742,394)

Loss to General Revenue Fund
   Educational Expense Income
   Tax Deduction                 ($3,438,625)   ($4,377,300)   ($4,622,850)

ESTIMATED NET EFFECT TO
GENERAL REVENUE FUND            ($16,483,351)  ($37,054,339)  ($37,365,244)


FISCAL IMPACT  - Local Government     FY 1997        FY 1998        FY 1999
                                     (10 Mo.)

                                            0              0              0

DESCRIPTION

This proposal would increase the dependency exemption deduction by $400
beginning with the 1997 tax year.

This proposal would also provide a tuition deduction on an individual's state
income tax return. The tuition deduction is available only for dependents in
grades 9-12, with the deduction capped at $2500 for each dependent.

This legislation is not federally mandated, would not duplicate any other
program and would not require additional capital improvements or rental
space.

SOURCES OF INFORMATION

Department of Revenue
Office of Administration
Department of Elementary and Secondary Education