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BILL # HB 2379
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TITLE: marriage penalty elimination; tax credits
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SPONSOR: Yarbrough
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STATUS: As Introduced
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REQUESTED BY: House
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PREPARED BY: Jake
Corey
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FISCAL ANALYSIS
Description
The bill amends the following
individual income tax credits to allow married couples to claim a credit that
is twice the amount single filers are currently allowed to claim: 1) Charitable
Organization Providing Assistance to the Working Poor, 2) Private School
Tuition Organization, and 3) Public School Extracurricular Activities. The
bill further requires that any new individual income tax credit enacted after
December 31, 2005 include a credit amount for married couples twice the amount
allowed for single filers.
Estimated Impact
The bill could result in an
estimated General Fund revenue loss of between $(1.9) million and $(10.6) million
in FY 2006 for the Charitable tax credit and the Public School tax credit
provisions. The estimated range of revenue loss would include:
1) Charitable tax credit ($70,000 to $380,000); and 2) Public School
Extracurricular Activities tax credit ($1.8 million to $10.2 million).
The JLBC Staff is unable to
determine the fiscal impact of the Private School Tuition Organization (STO)
tax credit with certainty. The provision would have two potential impacts: 1)
the increased tax credit would reduce state revenues from the individual income
tax (estimated loss of between $(1.9) million and $(10.9) million); and 2) new
STO scholarships would reduce the state’s K-12 education costs if students attend
private school who otherwise would have attended public school. The bill would
be revenue neutral if between 400 and 2,300 students attend private school who
otherwise would have attended public school.
The Department of Revenue (DOR)
estimates that the bill would result in a General Fund revenue loss of $(23)
million. Of the total, DOR estimates $900,000 would be due to the Charitable
credit, $8.7 million would be due to the Private School Tuition Organization
credit, and $13.2 million would be due to the Public School Extracurricular
Activities credit. The department has not attempted to account for any K-12 savings
that could result from increasing the Private School Tuition Organization
credit.
Analysis
The bill would increase the
amount that a married couple can claim for certain tax credits such that the
maximum allowable for a married couple would be twice that of individual
filers. In analyzing the fiscal impact of each credit, JLBC Staff has made the
following assumptions:
- Married couples account for
between 50% to 75% of the total amount of credits claimed
- Raising a credit’s maximum allowable
amount for married couples will result in 20% to 75% of married couples
increasing their claim
- Raising a credit’s maximum
allowable amount for married couples will not result in additional married
couples claiming the credit
- Aside from any increases in
the maximum allowable amount of a credit, the total amount of credits
claimed will annually increase by 3%
Charitable Organization
Providing Assistance to the Working Poor
A.R.S. § 43-1088 allows
taxpayers to claim a credit for contributions made to a charitable organization
that provides assistance to the working poor. The charitable organization must
expend at least 50% of it budget on services for Temporary Assistance for Needy
Families (TANF) recipients or low income households. Currently, the amount of
the credit is capped at $200 for both individuals and married couples. The
bill would increase the cap for a married couple to $400.
According to the most recent
data available from DOR, total credits claimed by both single individuals and
married couples equaled approximately $590,000 in FY 2001. Using a 3% growth
rate, total credits claimed would be $680,000 in FY 2006. Assuming married
couples claim between 50% and 75% of these credits, we estimate married couples
would claim between approximately $340,000 and $510,000. Further assuming
between 20% and 75% of married couples would increase their claim, raising the
cap for married couples to $400 would result in additional credits claimed of
between $70,000 and $380,000. If additional married couples made contributions
and claimed the credit as a result of increasing the available credit, there
would be a further loss of state revenues.
Private Student Tuition
Organization
A.R.S. § 43-1089 allows
taxpayers to claim a credit for contributions made to a school tuition
organization. Student tuition organizations are charitable organizations that
allocate at least 90% of their annual revenue to private schools for
scholarships or tuition grants. Currently, the amount of the credit is capped
at $500 for an individual and $625 for a married couple. The bill would
increase the cap for a married couple to $1,000.
According to the most recent
data available from DOR, total credits claimed by both single individuals and
married couples equaled $29.5 million in FY 2003. Using a 3% growth rate,
total credits claimed would be $32.2 million in FY 2006. Assuming married
couples claim between 50% and 75% of these credits, we estimate married couples
would claim between approximately $16.1 million and $24.2 million. Further
assuming between 20% and 75% of married couples would increase their claim, raising
the cap for married couples to $1,000 would result in additional credits
claimed of between $1.9 million and $10.9 million. If additional married
couples made contributions and claimed the credit as a result of increasing the
available credit, there would be a further loss of state revenues.
If expanding the credit
results in additional contributions made to student tuition organizations,
these organizations may be able to offer additional scholarships to new students
or increase existing awards to current students. Any loss in state revenues
from married couples claiming additional credits could be offset if expansion
of the credit resulted in new private school students or students remaining in
private school who otherwise would have transferred to public school. It is
difficult, however, to quantify all the incentives that factor into private
school attendance, as there are both monetary and non-monetary ones.
Currently each pupil added to
the statewide K-12 Average Daily Membership (ADM) count costs the state General
Fund on average about $4,700. Based on past trends, JLBC Staff estimates that
this amount will increase 2.5% annually in future years. The state General
Fund, therefore, would save an average of about $4,800 in FY 2006 for each
pupil that would have otherwise attended public school.
Assuming a state General Fund
revenue loss of between $1.9 million and $10.9 million to increase the married
couple cap to $1,000, we estimate that this portion of the bill would be
revenue neutral if between 400 and 2,300 pupils attend private school who
otherwise would have attended public school. This includes both students who
transfer from public schools to private schools as well as students who remain
in private schools as a result of receiving tuition assistance. Given an estimated
private school population of 45,000 in FY 2006, this would represent between 1%
and 5% of that population.
Beyond its impact on K-12
operating costs, increasing the Private School Tuition Organization credit potentially
could reduce School Facilities Board (SFB) costs for new school construction
and building renewal pursuant to A.R.S. § 15‑2041 and A.R.S. § 15‑2031,
which could help offset the cost of the tax credit. New school construction
costs would decrease if the SFB approved fewer new schools because of reduced
enrollment growth under the bill. This would reduce SFB building renewal costs
as well because fewer school buildings would require funding under that
formula.
Analysis (Continued)
The amount and timing of new
construction and building renewal savings under the bill is difficult to
predict because only growing school districts with projected space deficiencies
qualify for new schools and the proportion of pupils who would leave such
districts versus all other districts under the bill is unknown. The timing of
any potential savings in SFB-related costs under the bill likewise is difficult
to predict because new schools are approved through a multi-year process that
would not be immediately affected by the bill.
Public School Extracurricular
Activities
A.R.S. § 43-1089.01 allows
taxpayers to claim a credit for the amount of any fees paid or contributions
made in the taxable year to a public school in support of extracurricular
activities or character education programs. Currently, the amount of the
credit is capped at $200 for an individual and $250 for a married couple. The
bill would increase the cap for a married couple to $400.
According to the most recent
data available from DOR, total credits claimed by both single individuals and
married couples equaled $27.7 million in FY 2003. Using a 3% growth rate,
total credits claimed would be $30.3 million in FY 2006. Assuming married
couples claim between 50% and 75% of these credits, we estimate married couples
would claim between approximately $15.2 million and $22.7 million. Further
assuming between 20% and 75% of married couples would increase their claim, raising
the cap for married couples to $400 would result in additional credits claimed
of between $1.8 million and $10.2 million. If additional married couples made
contributions and claimed the credit as a result of increasing the available
credit, there would be a further loss of state revenues.
Local Government Impact
The Urban Revenue Sharing
formula distributes 15% of income taxes collected two years prior to
incorporated cities and towns. The bill, therefore, could reduce these
distributions by between approximately $570,000 and $3.2 million beginning in
FY 2008.
Regarding the Private School
Tuition Organization tax credit, K-12 equalization funding to local school
districts and charter schools would be lower under the bill than under current
law because they would serve fewer pupils. The amount of funding loss per
year, however, would depend on the number of existing public school pupils
receiving scholarships each year under the bill versus the number of
scholarships granted to “non-saving” pupils, which cannot be predicted.
Funding losses for most
school districts would reduce General Fund costs rather than “local share” tax
rates, since the latter are affected only by changes in tax rates and property
values and neither of them would be affected by the bill. This would not be
the case for “non-state aid” districts, however, because reductions in their
ADM counts could cause them to lower their K-12 “local share” tax rates, since
those rates are usually based on enrollments. Non-state aid districts would
not
necessarily lower their tax
rates under the bill, though, because they are required to levy a “local share”
tax rate equal to at least 50% of the K-12 Qualifying Tax Rate (QTR) pursuant
to A.R.S. § 15-992(B).
Public school enrollment
losses under the bill also potentially could reduce the amount of local
property tax funding generated by school districts for overrides (which are
capped at levels that indirectly tied to enrollment counts), school bond
issuances, and “Excess Utilities” and other costs that may be funded with local
property tax revenues.
2/7/05
