SB 0887 - Fiscal Note

Fiscal Note - SB 0887 - Increases dependency exemption to $800 and increases income levels for circuit breaker bill

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO. 3621-01

BILL NO. SB 887

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

TYPE: Original

DATE: February 20, 1998

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
General Revenue	($19,417,075)	($52,621,002)	($53,121,527)
Total Estimated Net Effect on All State Funds	($19,417,075)	($52,621,002)	($53,121,527)

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
None
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
Local Government	$0	$0	$0

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 4 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials of the Department of Revenue (DOR) state this proposal reduces the age limit requirement to 62 and increases the maximum upper limit to $20,000 and the minimum base to $10,900.

ADMINISTRATIVE IMPACT:

Currently, 11% of those individuals over 65 years of age claim the property tax credit. Census statistics indicate there are 138,338 persons between the age 62 and 65, so we hypothesize an additional 15,217 persons (or 11% of the base) would file a property tax credit form. The Central Processing Bureau will need an additional Clerk I and one additional Tax Processing Technician for six months to assist during the income tax season with processing, pre-edit and error corrections.

Officials of the Office of Administration (COA) state this proposal reduces the age limit to 62, and increases the minimum base and maximum upper limit of the Circuit Breaker Tax Credit program.

METHODOLOGY

Lowering the age limit to 62 years old increases the number of eligible households by approximately 18%, or 12,640. With an average credit of $294, the revenue loss is $3.7 million in FY1999. Two percent annual growth was assumed.

Raising the minimum base and the maximum upper limit: Currently 71,000 households take advantage of the Circuit Breaker Tax Credit. With the lowered age limit 83,640 households would qualify under the existing minimum base and maximum upper limit. Their average credit is $294. COA staff estimate that the average credit for raising the minimum base to $10,900 for these taxpayers will increase by $176. This yields a revenue reduction of $14.7 million in FY1999. Based on demographic data, COA staff estimate that an additional 88,350 newly eligible households per year will claim the Circuit Breaker Tax Credit due to the increased upper income limit. COA staff estimate that the average credit for raising the maximum upper limit to $20,000 for this group will be $50. This yields a revenue reduction of $1 million in FY1999. Two percent annual growth was assumed. The total cost of expanding the Circuit Breaker program in FY1999 is $19.4 million, $19.8 million in FY2000, and $20.2 million in FY2001.

In addition, officials from the Office of Administration (COA) state the individual income tax portion of this proposal is $0 in FY1999, ($32,8000,000) in FY2000, and ($32,900,000) in FY2001. COA states these estimates are from the FY1999 Consensus Revenue Forecast and Budget and Planning's Individual Income Tax Simulator. COA states the revenue reductions

from this proposal would require an equivalent amount of general revenue in order to fully fund the Foundation Formula. COA assumes that taxpayers would not adjust their withholdings in FY1999 to take advantage of this deduction.

ASSUMPTION (continued)

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

FISCAL IMPACT - State Government	FY 1999	FY 2000	FY 2001
	(10 Mo.)
GENERAL REVENUE FUND
Loss to General Revenue Fund
Increase in circuit breaker
credit claims	($19,400,000)	($19,800,000)	($20,200,000)
Increase in dependency deduction	$0	($32,800,000)	($32,900,000)
Total Loss - General Revenue Fund	($19,400,000)	($52,600,000)	($53,100,000)
Cost to General Revenue Fund
Department of Revenue (DOR)
Personal Service (2 FTE)	($13,340)	($16,408)	($16,818)
Fringe Benefits	($3,375)	($4,594)	($4,709)
Administrative Cost to DOR	($17,075)	($21,002)	($21,527)
ESTIMATED NET EFFECT TO
GENERAL REVENUE FUND	($19,417,075)	($52,621,002)	($53,121,527)
FISCAL IMPACT - Local Government	FY 1999	FY 2000	FY 2001
	(10 Mo.)
	$0	$0	$0

FISCAL IMPACT - Small Business

No direct fiscal impact to small businesses would be expected as a result of this proposal.

DESCRIPTION

This proposal would increase the income tax dependent exemption from $400 to $800 and makes changes in the circuit breaker law. The proposal would lower the age for claimants under the circuit breaker law from 65 years to 62, would raise the maximum upper limit from the current $15,000 to $20,000, and would raise the minimum base from the current $5,900 to $10,900.

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

Jeanne Jarrett, CPA

Director

February 20, 1998