Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

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

SPONSOR Lopez

DATE TYPED 3-04-2005 HB

SHORT TITLE Eliminate 2006 & 2007 Income Tax Reductions

SB 469

ANALYST Taylor

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

$45,700.0

$122,850.0 Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department (TRD)

SUMMARY

Senate Bill 469 eliminates the personal income tax rate reductions that are scheduled to take ef-

fect in tax year 2006 and 2007. Under current law, in tax year 2006, the top marginal tax rate

will be reduced from 6.0 percent to 5.3 percent; in tax year 2007, the top marginal rate will be

reduced from 5.3 percent to 4.9 percent.

The bill carries no effective date and thus its provisions would become applicable 90 days after

the end of the legislative session

FISCAL IMPLICATIONS

The Taxation and Revenue Department estimates that eliminating the rate reductions would in-

crease state general fund revenues by $45.7 million in FY06, $122.9 million in FY07 and $159.8

million in FY08. They build their estimate from 2003 tax returns, growing underlying tax liabil-

ity by 6 percent per year. They also provide a table showing the impact by filing status. The ta-

ble is attached to this FIR.

ADMINISTRATIVE IMPLICATIONS

The Taxation and Revenue Department reports no significant administrative implications.

Senate Bill 469 -- Page 2

OTHER SUBSTANTIVE ISSUES

The Taxation and Revenue Department’s analysis included the following issues:

The attached table presents an illustration of the impacts of SB 469 by taxpayer filing status and

income bracket in tax year 2007. The income brackets are based on taxable income, which is the

net amount remaining after all exemptions and deductions have been subtracted from total in-

come.

Major impacts of SB 469 in tax year 2007:

Married taxpayers filing jointly would see an increase in liability if their taxable income

exceeds $24,000. This corresponds roughly with $45,000 of total income. Their total li-

ability increase would be $112.6 million on 193 thousand tax returns for an average tax

increase of $583 per return. The tax increase per return increases with income. Taxpay-

ers with taxable income below $40,000 would see an increase of $90 per return, while

those with taxable income over $100 thousand would see an increase of over $2,000 per

return.

Single taxpayers would see an increase in liability if their taxable income exceeds

$16,000. This corresponds roughly with $25,000 of total income. Their total liability in-

crease would be $33.5 million on 120 thousand tax returns for an average tax increase of

$280 per return. The tax increase per return increases with income. Taxpayers with tax-

able income below $26,000 would see an increase of $54 per return, while those with

taxable income over $65 thousand would see an increase of over $1,500 per return.

Head of Household taxpayers would see an increase in liability if their taxable income

exceeds $20,000. This corresponds roughly with $36,000 of total income. Their total li-

ability increase would be $6.6 million on 27 thousand tax returns for an average tax in-

crease of $244 per return. The tax increase per return increases with income. Taxpayers

with taxable income below $33,000 would see an increase of $61 per return, while those

with taxable income over $83 thousand would see an increase of over $1,900 per return.

BT/yr

Attachment