INCOME TAX RATE REDUCTION - S.B. 1079: FLOOR ANALYSIS
Senate Bill 1079 (as reported with amendment)
Sponsor: Senator Loren Bennett
Committee: Finance
CONTENT
The bill would amend the Income Tax Act to provide that the income tax rate would be reduced from 4.4% to 4.3% in 2000. The bill also provides that revenue dedicated to the State School Aid Fund would not be reduced due to reductions in the income tax rate. (Currently, the Act provides that 23% of the gross collections of the tax before refunds must be deposited in the State School Aid Fund.)
The bill is tie-barred to Senate Bills 1080, 1081, 1082, and 1083; these bills, with Senate Bill 1079, propose to reduce the State income tax from the current rate of 4.4% to 3.9% over a five-year period ending in 2004. After 2004 the rate would remain 3.9%.
MCL 206.51 et al. - Legislative Analyst: G. Towne
FISCAL IMPACT
The income tax rate reductions proposed in these bills would lower income tax revenue by an estimated $124 million in FY 2000 and $307 million in FY 2001, compared with the revenue that otherwise will be generated at the current rate of 4.4%. By FY 2004, when the income tax rate would decline to 3.9% effective January 1, 2004, income tax revenue would be reduced by an estimated $968 million. The cumulative reduction in income tax revenue from FY 2000 to FY 2004 would total an estimated $2.63 billion. This entire loss in income tax revenue would affect the General Fund/General Purpose budget. Under current law, the School Aid Fund receives 23% of gross income tax collections and the remaining income tax revenue, after refunds, goes to the General Fund/General Purpose budget. Senate Bill 1079 is designed to hold the School Aid Fund harmless by earmarking an amount equal to what is earmarked under current law. This would be accomplished by changing the earmarking to the School Aid Fund to the gross income tax revenue generated by 1.012 percentage points of the tax rate, which is equal to 23% of the current 4.4% tax rate. The estimated loss in revenue for FY 2000 to FY 2004 is summarized in the following table.
|
Estimated Fiscal Impact of Senate Bills 1079, 1080, 1081, 1082, 1083 | |||||
| (dollars in millions) | |||||
| FY 2000 | FY 2001 | FY 2002 | FY 2003 | FY 2004 | |
| Current Law Tax Rate | 4.4% | 4.4% | 4.4% | 4.4% | 4.4% |
| Proposed Income Tax Rate Reduction: * | |||||
| Incremental Reduction | -0.1% | -0.1% | -0.1% | -0.1% | -0.1% |
| Cumulative Reduction | -0.1% | -0.2% | -0.3% | -0.4% | -0.5% |
| Proposed Income Tax Rate | 4.3% | 4.2% | 4.1% | 4.0% | 3.9% |
| Estimated Reduction in Revenue: | ($123.9) | ($307.2) | ($507.9) | ($727.6) | ($967.8) |
| % Reduction in Income Tax Revenue | -1.9% | -4.5% | -7.0% | -9.6% | -12.2% |
| Cumulative Tax Reduction | ($123.9) | ($431.1) | ($939.0) | ($1,666.6) | ($2,634.4) |
| Estimated Impact by Fund: | |||||
| General Fund/General Purpose | ($123.9) | ($307.2) | ($507.9) | ($727.6) | ($967.8) |
| School Aid Fund | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| * Income tax rate reductions would be effective January 1 each year from 2000 to 2004. | |||||
Date Completed: 4-30-98 - Fiscal Analyst: J. Wortley
FLOOR\SB1079
This analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent.