SB 0057 - Fiscal Note

Fiscal Note - SB 0057 - Phases in full deductibility of federal income taxes paid by individuals

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO.: 0477-01

BILL NO.: SB 57

SUBJECT: Revenue Department; Taxation and Revenue - General; Taxation and Revenue - Income

TYPE: Original

DATE: February 3, 1999

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
General Revenue	$0	$0	$0
Outstanding Schools Trust	$0	($95,247,848)	($139,093,227)
Total Estimated Net Effect on All State Funds	$0	($95,247,848)	($139,093,227)

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
None
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
Local Government	(UNKNOWN)	(UNKNOWN)	(UNKNOWN)

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 4 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials from the Department of Revenue (DOR) state this proposal would restore the federal income tax deduction by phasing in the deduction over a number of years beginning January 1, 1999. DOR states that all modifications to the income tax system, forms, and reports would be completed by the Division of Taxation with existing staff and resources.

Officials of the Office of Administration (COA) did not respond to our fiscal impact request. However, in responding to a similar proposal last year, COA stated the proposal would increase the deductibility for federal income tax paid for individuals. The individual income tax of this proposal would be $0 for FY 1999, ($95,247,848) in FY 2000 and ($139,093,227) for FY 2001. These estimates come directly from the FY99 Consensus Revenue Forecast and Budget and Planning's Individual Income Tax Simulator. COA stated the revenue reductions from this proposal would require an equivalent amount of General Revenue in order to fully fund the Foundation Formula. COA assumed that taxpayers would not adjust their withholdings in FY00 to take advantage of this deduction.

Oversight will reflect the impact of this proposal as a loss to the Outstanding Schools Trust Fund.

This proposal would result in a decrease in Total State Revenues.

FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
	(6 Mo.)
GENERAL REVENUE FUND
Loss - General Revenue Fund
Increase in Federal Income Tax Deduction	$0	($95,247,848)	($139,093,227)
Savings to General Revenue Fund
Reduction in funds transferred to
Outstanding Schools Trust Fund	$0	$95,247,848	$139,093,227
ESTIMATED NET EFFECT TO
GENERAL REVENUE FUND	$0	$0	$0
FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
(continued)	(6 Mo.)
OUTSTANDING SCHOOLS TRUST FUND
Loss to Outstanding Schools Trust Fund
Increase in Federal Income Tax Deduction	$0	($95,247,848)	($139,093,227)
ESTIMATED NET EFFECT TO OUTSTANDING
SCHOOLS TRUST FUND	$0	($95,247,848)	($139,093,227)
FISCAL IMPACT - Local Government	FY 2000	FY 2001	FY 2002
	(6 Mo.)
SCHOOL DISTRICTS
Loss - Local School Districts
Reduction in funds transferred from
the Outstanding Schools Trust Fund	(Unknown)	(Unknown)	(Unknown)
ESTIMATED NET EFFECT ON
SCHOOL DISTRICTS	(UNKNOWN)	(UNKNOWN)	(UNKNOWN)
FISCAL IMPACT - Small Business
Small businesses would be expected to be fiscally impacted to the extent that they pay income taxes. The increase in the federal income tax deduction would cause small businesses to pay less income tax.

DESCRIPTION

Current law limits the amount of federal income tax an individual can deduct on his or her state income tax return to $5,000 for single taxpayers and $10,000 for married taxpayers filing a combined return. This proposal would phase in full deductibility of federal income taxes paid by individuals as follows: for tax year 1999, the limits would be increased to $10,000 for singles and $20,000 for married filing combined; for tax year 2000, the limits would be $15,000 for singles and $30,000 for married filing combined; for tax year 2001, the limits would be $20,000 for singles and $40,000 for married filing combined; and for tax years 2002 and thereafter, a full deduction would be allowed.

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

NOT RESPONDING: Office of Administration - Division of Budget and Planning

Jeanne Jarrett, CPA

Director

February 3, 1999