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

SPONSOR Fox-Young

ORIGINAL DATE

LAST UPDATED

1/25/06

HB 85

SHORT TITLE Reduce Certain Income Tax Rates

SB

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

(29,700.0)

(60,130.0)

(30,400.0) Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department (TRD)

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

House Bill 85 accelerates the phase-in of the personal income tax rates started in 2003 so that the

top income bracket rate is 4.9 percent starting in tax year 2006 rather than tax year 2008 as is the

case in current law. This changes two years of income tax rates as Table 1 shows:

House Bill 85 – Page 2

Table 1: Personal Income Tax Rates By Income Bracket

Married Filing Jointly,

Surviving Spouses,

Head of Household

Married Filing

Separate

Single

2006 2007 2008

Current Law

<8000

<4000

<5500

1.7%

1.7%

1.7%

8000-16000

4000-8000

5500-11000

3.2%

3.2%

3.2%

16000-24000

8000-12000 11000-16000

4.7%

4.7%

4.7%

24,000 +

12,000 +

16,000 +

5.3%

5.3%

4.9%

HB85

<8000

<4000

<5500

1.7%

1.7%

1.7%

8000-16000

4000-8000

5500-11000

3.2%

3.2%

3.2%

16000-24000

8000-12000 11000-16000

4.7%

4.7%

4.7%

24,000 +

12,000 +

16,000 +

4.9%

4.9%

4.9%

Taxable Income Brackets

FISCAL IMPLICATIONS

The fiscal impact of HB 85 is to reduce personal income tax collections by $60.1 million in tax

year 2006 and $60.8 million in 2007. Assuming tax years are spread evenly over fiscal years,

there will be a FY06 impact of $29.7 million. The FY07 impact will be $60.1. FY08 is assumed

to be the $60.8 million, accounting for natural increases in personal income.

SIGNIFICANT ISSUES

The benefits of the remaining years of the phase-in and hence the tax relief in HB 85 accrue only

to those tax filers subject to the highest bracket as indicated in Table 1 or 34 percent of tax filers.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

The personal income tax rate for the top income bracket is already scheduled to come down to

4.9 percent in 2008,

NF/yr:nt