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

 

 

 

SPONSOR:

Cisneros

 

DATE TYPED:

2/6/03

 

HB

 

 

SHORT TITLE:

Reduce Income Tax Rates

 

SB

167/aSFl

 

 

ANALYST:

Smith

 

REVENUE

 

Estimated Revenue

 

Recurring

or Non-Rec

Fund

Affected

FY04

FY05

FY06

FY07

 

 

(17,110.0)

(56,909.0)

(151,058.0)

(299,293.0)

Recurring

 

Rate Cut

(4,176.0)

(10,297.0)

(15,622.0)

(25,844.0)

Recurring

 

Capital Gains Cut

(21,286.0)

(67,206.0)

(166,680.0)

(325,137.0)

Recurring

 

Total General Fund

 

 

 

 

 

 

(Parenthesis ( ) Indicate Revenue Decreases)

 

Duplicates HB167

 

SOURCES OF INFORMATION

 

Responses Received From

 

TRD

 

SUMMARY

 

 Synopsis of SFl Amendment

 

The Senate Floor amendments are largely technical in nature. They changes the timeline for the payment of interest on income tax refunds from 75 days to 55 days from the date of the claim. The amendments should have a negligible fiscal impact.    

 

 Synopsis of Original Bill

 

This measure would reduce New Mexico’s highest personal income tax rates from their current maximum of 8.2 percent to the following rates:

 

·       In tax year 2003: 7.7%;

·       In tax year 2004: 7.0%;

·       In tax year 2005: 6.0%; and

·       In tax year 2006 and after: 5.0%.

 

Beginning in tax year 2003, taxpayers would be able to deduct the greater of $1,000 or the following percentage of their net capital gain income:

 

·       In tax year 2003: 10%;

·       In tax year 2004: 20%;

·       In tax year 2005: 30%; and

·       In tax years 2006 and after: 50%.

 

     Significant Issues

 

TRD has supplied the following rate tables.

 

Current and Proposed Personal Income Tax Rates

 

Current

Joint

Single

Separate

Head of Household

 

Taxable Income

Taxable Income

Taxable Income

Taxable Income

Rate (%)

From

to

From

to

From

to

From

to

1.7

 0 

         8,000

 0 

         5,500

 0 

         4,000

 0 

         7,000

3.2

         8,001

       16,000

         5,501

       11,000

         4,001

         8,000

         7,001

       14,000

4.7

       16,001

       24,000

       11,001

       16,000

         8,001

       12,000

       14,001

       20,000

6

       24,001

       40,000

       16,001

       26,000

       12,001

       20,000

       20,001

       33,000

7.1

       40,001

       64,000

       26,001

       42,000

       20,001

       32,000

       33,001

       53,000

7.9

       64,001

     100,000

       42,001

       65,000

       32,001

       50,000

       53,001

       83,000

8.2

     101,000

 & above

       65,001

 & above

       50,001

 & above

       83,001

 & above

 

 

 

 

 

 

 

 

 

Proposed

Joint

Single

Separate

Head of Household

Tax Year 2003

Taxable Income

Taxable Income

Taxable Income

Taxable Income

Rate (%)

From

to

From

to

From

to

From

to

1.7

 0 

         8,000

 0 

         5,500

 0 

         4,000

 0 

         7,000

3.2

         8,001

       16,000

         5,501

       11,000

         4,001

         8,000

         7,001

       14,000

4.7

       16,001

       24,000

       11,001

       16,000

         8,001

       12,000

       14,001

       20,000

6

       24,001

       40,000

       16,001

       26,000

       12,001

       20,000

       20,001

       33,000

7.1

       40,001

       64,000

       26,001

       42,000

       20,001

       32,000

       33,001

       53,000

7.7

       64,001

 & above

       42,001

 & above

       32,001

 & above

       53,001

 & above

 

 

 

 

 

 

 

 

 

Proposed

Joint

Single

Separate

Head of Household

Tax Year 2004

Taxable Income

Taxable Income

Taxable Income

Taxable Income

Rate (%)

From

to

From

to

From

to

From

to

1.7

 0 

         8,000

 0 

         5,500

 0 

         4,000

 0 

         7,000

3.2

         8,001

       16,000

         5,501

       11,000

         4,001

         8,000

         7,001

       14,000

4.7

       16,001

       24,000

       11,001

       16,000

         8,001

       12,000

       14,001

       20,000

6

       24,001

       40,000

       16,001

       26,000

       12,001

       20,000

       20,001

       33,000

7

       40,001

 & above

       26,001

 & above

       20,001

 & above

       33,001

 & above

 

 

 

 

 

 

 

 

 

Proposed

Joint

Single

Separate

Head of Household

Tax Year 2005

Taxable Income

Taxable Income

Taxable Income

Taxable Income

Rate (%)

From

to

From

to

From

to

From

to

1.7

 0 

         8,000

 0 

         5,500

 0 

         4,000

 0 

         7,000

3.2

         8,001

       16,000

         5,501

       11,000

         4,001

         8,000

         7,001

       14,000

4.7

       16,001

       24,000

       11,001

       16,000

         8,001

       12,000

       14,001

       20,000

6

       24,001

 & above

       16,001

 & above

       12,001

 & above

       20,001

 & above

 

 

 

 

 

 

 

 

 

Proposed

Joint

Single

Separate

Head of Household

Tax Year 2006

Taxable Income

Taxable Income

Taxable Income

Taxable Income

Rate (%)

From

to

From

to

From

to

From

to

1.7

 0 

         8,000

 0 

         5,500

 0 

         4,000

 0 

         7,000

3.2

         8,001

       16,000

         5,501

       11,000

         4,001

         8,000

         7,001

       14,000

4.7

       16,001

       24,000

       11,001

       16,000

         8,001

       12,000

       14,001

       20,000

5

       24,001

 & above

       16,001

 & above

       12,001

 & above

       20,001

 & above

 

FISCAL IMPLICATIONS

 

The impacts of the capital gains deduction are evaluated under the proposed tax rates.  If the tax rate changes are not adopted, the impacts of the capital gains provisions compared to present law tax rates would be larger.  Further, capital gains realization levels have been suppressed by recent stock market performance. While a “bounce” back to the levels of the late 1990’s is not anticipated, it should be noted that realizations are notoriously volatile and difficult to forecast.

 

OTHER SUBSTANTIVE ISSUES

 

TRD notes that state income tax payments are deductible for purposes of calculating federal income tax.  Thus, because this proposal would reduce state income tax liabilities, it would also reduce these deductions.  This reduces the net benefits of the tax reduction for the taxpayer.  For example, if a taxpayer is in the 30% tax bracket, the net benefit to the taxpayer of the state tax reduction would be reduced by 30%. 

 

Many tax experts actually admire New Mexico’s tax system. A recent Governing article ranked the states –tax system in the top four for adequacy of revenues and in the top ten for fairness to taxpayers. However, New Mexico ranked in the near the bottom for management of the tax system.

 

If this bill were enacted, New Mexico’s top rate would be the 9th lowest in the nation as of 2007.

 

TRD has provided the following table that shows who reaps the benefit of the income tax cut by income class and filing status.

 

Effects of Proposed Tax Reduction by Taxable Income and Filing Status

 

Tax Year 2003

Tax Year 2004

Tax Year 2005

Tax Year 2006

Filing Status

 Present Law Liability *                      

 Proposed Law Liability*

Decrease in Tax Liability *

 Present Law Liability *                      

 Proposed Law Liability*

Decrease in Tax Liability *

 Present Law Liability *                      

 Proposed Law Liability*

Decrease in Tax Liability *

 Present Law Liability *                      

 Proposed Law Liability*

Decrease in Tax Liability *

 

 

 

 

 

 

 

 

 

 

 

 

 

Married Filing Joint

 

 

 

 

 

 

 

 

 

 

 

 

Taxable Income ($)

 

 

 

 

 

 

 

 

 

 

 

 

0 to     8,000

 2.0

 2.0

 (0.0)

 2.1

 2.1

 0.0

 2.2

 2.2

 (0.0)

 2.3

 2.3

 (0.0)

8,001 to   16,000

 9.4

 9.4

 (0.0)

 10.0

 10.0

 0.0

 10.7

 10.7

 (0.0)

 11.5

 11.5

 (0.0)

16,001 to   24,000

 18.2

 18.2

 (0.0)

 19.6

 19.6

 0.0

 21.0

 21.0

 (0.0)

 22.6

 22.6

 (0.0)

24,001 to   40,000

 76.2

 76.2

 (0.0)

 81.4

 81.4

 (0.0)

 86.9

 86.9

 (0.0)

 92.9

 82.8

 (10.2)

40,001 to   64,000

 159.2

 159.1

 (0.0)

 169.3

 167.9

 (1.4)

 179.7

 167.4

 (12.3)

 191.2

 153.8

 (37.4)

64,001 to 100,000

 165.9

 164.5

 (1.4)

 175.7

 167.7

 (8.0)

 185.7

 159.5

 (26.3)

 196.7

 143.9

 (52.8)

100,001    and over

 291.7

 280.4

 (11.3)

 306.4

 273.5

 (32.9)

 321.5

 250.6

 (70.9)

 337.8

 221.4

 (116.4)

   Total

 722.5

 709.8

 (12.7)

 764.4

 722.1

 (42.3)

 807.8

 696.6

 (111.2)

 855.1

 638.4

 (216.8)

 

 

 

 

 

 

 

 

 

 

 

 

 

Single

 

 

 

 

 

 

 

 

 

 

 

 

Taxable Income ($)

 

 

 

 

 

 

 

 

 

 

 

 

0 to    5,500

 5.6

 5.6

 (0.0)

 5.9

 5.9

 0.0

 6.3

 6.3

 0.0

 6.7

 6.7

 -  

5,500   to 11,000

 19.5

 19.5

 (0.0)

 20.9

 20.9

 0.0

 22.4

 22.4

 0.0

 24.2

 24.2

 0.0

11,000  to 16,000

 27.9

 27.9

 (0.0)

 29.8

 29.8

 (0.0)

 31.8

 31.8

 (0.0)

 34.1

 34.1

 0.0

16,000 to 26,000

 57.1

 57.1

 (0.0)

 60.8

 60.8

 (0.0)

 64.7

 60.5

 (4.2)

 68.9

 52.9

 (16.0)

26,000 to 42,000

 47.2

 47.2

 0.0

 50.0

 47.8

 (2.2)

 52.9

 45.9

 (7.1)

 56.2

 41.5

 (14.6)

42,000 to 65,000

 27.2

 26.3

 (0.9)

 28.7

 26.4

 (2.2)

 30.2

 24.6

 (5.6)

 31.9

 22.0

 (9.9)

65,000  and over

 48.2

 46.0

 (2.2)

 50.5

 44.4

 (6.1)

 52.9

 40.4

 (12.5)

 55.5

 35.5

 (20.0)

   Total

 232.7

 229.5

 (3.2)

 246.8

 236.1

 (10.7)

 261.3

 231.9

 (29.4)

 277.4

 216.8

 (60.7)

 

 

 

 

 

 

 

 

 

 

 

 

 

Separate

 

 

 

 

 

 

 

 

 

 

 

 

Taxable Income ($)

 

 

 

 

 

 

 

 

 

 

 

 

0  to   4,000

 0.0

 0.0

 -  

 0.0

 0.0

 -  

 0.0

 0.0

 -  

 0.0

 0.0

 -  

4,000   to  8,000

 0.1

 0.1

 -  

 0.1

 0.1

 -  

 0.1

 0.1

 -  

 0.1

 0.1

 -  

8,000  to 12,000

 0.2

 0.2

 -  

 0.3

 0.3

 -  

 0.3

 0.3

 -  

 0.3

 0.3

 (0.0)

12,000 to 20,000

 1.0

 1.0

 -  

 1.1

 1.1

 (0.0)

 1.1

 1.1

 (0.0)

 1.2

 1.1

 (0.1)

20,000 to 32,000

 1.8

 1.8

 -  

 1.9

 1.9

 (0.0)

 2.0

 1.8

 (0.1)

 2.1

 1.7

 (0.4)

32,000 to 50,000

 1.8

 1.7

 (0.0)

 1.9

 1.8

 (0.1)

 2.0

 1.7

 (0.3)

 2.1

 1.5

 (0.6)

50,000  and over

 6.3

 6.0

 (0.3)

 6.6

 5.8

 (0.8)

 6.9

 5.3

 (1.6)

 7.2

 4.6

 (2.6)

   Total

 11.2

 10.9

 (0.3)

 11.8

 10.9

 (0.9)

 12.4

 10.4

 (2.1)

 13.1

 9.4

 (3.7)

 

 

 

 

 

 

 

 

 

 

 

 

 

Head of Household

 

 

 

 

 

 

 

 

 

 

 

 

Taxable Income ($)

 

 

 

 

 

 

 

 

 

 

 

 

0  to   7,000

 1.7

 1.7

 (0.0)

 1.8

 1.8

 0.0

 1.9

 1.9

 (0.0)

 2.0

 2.0

 (0.0)

7,000   to  14,000

 4.7

 4.7

 (0.0)

 5.0

 5.0

 0.0

 5.3

 5.3

 (0.0)

 5.7

 5.7

 (0.0)

14,000  to 20,000

 6.0

 6.0

 (0.0)

 6.5

 6.5

 0.0

 7.0

 7.0

 (0.0)

 7.5

 7.5

 (0.0)

20,000 to 33,000

 11.5

 11.5

 (0.0)

 12.3

 12.3

 (0.0)

 13.1

 13.1

 0.0

 14.0

 12.6

 (1.4)

33,000 to 53,000

 12.3

 12.3

 (0.0)

 13.1

 13.0

 (0.1)

 13.9

 12.9

 (1.0)

 14.8

 11.9

 (2.8)

53,000 to 83,000

 7.2

 7.1

 (0.1)

 7.6

 7.2

 (0.3)

 8.0

 6.9

 (1.1)

 8.5

 6.2

 (2.3)

83,00  and over

 10.3

 9.9

 (0.4)

 10.8

 9.6

 (1.2)

 11.4

 8.8

 (2.6)

 11.9

 7.8

 (4.2)

   Total

 53.6

 53.1

 (0.5)

 57.0

 55.4

 (1.6)

 60.6

 55.8

 (4.8)

 64.4

 53.6

 (10.9)

 

 

Additionally, TRD has provided analogous tables for the capital gains tax reduction. 

 

Estimated Distributional Impacts of the Capital Gains Proposal For Selected Years:

 

Tax Year 2003

 

 

 

Adjusted Gross Income

 

Net Capital Gains

 

Increased Deductions

 

Decreased Tax Liability

 

(millions)

(millions)

(thousands)

$0 or Less

$10,000

$22.3

$0.0

$0.0

$10,000

$20,000

$15.0

$0.0

$0.0

$20,000

$30,000

$17.9

$0.0

$0.0

$30,000

$50,000

$45.0

$0.0

$0.0

$50,000

$75,000

$70.1

$0.0

$0.0

$75,000

$100,000

$70.1

$1.9

$129

$100,000

$150,000

$104.6

$4.9

$349

$150,000

$200,000

$69.5

$4.5

$314

$200,000

Over

$541.5

$48.0

$3,384

 

Total

$956.1

$59.3

$4,176

 

Tax Year 2006

 

 

 

Adjusted Gross Income

 

Net Capital Gains

 

Increased Deductions

 

Decreased Tax Liability

 

(millions)

(millions)

(thousands)

$0 or Less

$10,000

$28.3

$10.6

$159

$10,000

$20,000

$19.1

$5.3

$92.3

$20,000

$30,000

$22.8

$7.2

$217

$30,000

$50,000

$57.1

$20.6

$874

$50,000

$75,000

$89.1

$35.3

$1,596

$75,000

$100,000

$89.1

$38.0

$1,779

$100,000

$150,000

$132.9

$59.4

$2,876

$150,000

$200,000

$88.3

$41.0

$1,983

$200,000

Over

$688.0

$336.2

$16,267

 

Total

$1,214.7

$553.6

$25,844

 

SS/njw:prr