Automatic Income Tax Rate Adjustment Act Exposed

The Automatic Income Tax Rate Adjustment Act was adopted by ALEC's Tax and Fiscal Policy Task Force at the Spring Task Force Meeting on April 23, 2010, and approved by the ALEC Board of Directors on June 3, 2010. In addition to listing this bill on their website, ALEC lists a separate, more recent bill with an identical title, but different language. The more recent bill is posted below the original in bold. (Accessed on 7/9/2015).

CMD's Bill Summary

This would automatically adjust individual and corporate income tax rates downward if income tax revenue collected by the state increased over the previous two years by an average of more than 3.1 percent. The size of the income tax rate reductions would increase in proportion to the amount by which the two-year average surpasses 3.1 percent. This would squeeze government and cause cuts even in times of budget surplus.

ALEC Bill Text

Summary

The Automatic Income Tax Rate Adjustment Act provides for a biennial reduction in the state adjusted gross income tax rate on residents, nonresidents, and corporation if year-over-year revenue from the adjusted gross income tax exceeds certain amounts. The Budget Agency shall make the determination before July 1 of each even-numbered year and for the rate reduction to take effect in taxable years beginning in the immediately following odd-numbered year.

Legislation

Section 1. {Adjustment Rate}

(A) The tax rate of adjusted gross income imposed on residents, nonresidents and corporations is the same rate used for the preceding taxable year unless net adjusted gross income tax revenue collected by the state has increased, as determined under section 2.

(B) If the increase in revenue is at least three and one-tenth percent (3.1%), the tax rate to be used for the taxable year beginning in the immediately following odd-numbered year is the rate after the reduction under this subsection.

(C) If the two (2) year average percentage increase in revenue is:

(1) At least three and one-tenth percent (3.1%) but less than four and two-tenth percent (4.2%), the tax rate is the preceding taxable year's rate minus one tenth percent (0.1%);

(2) At least four and two-tenths percent ( 4.2%) but less than five and three-tenths percent (5.3%), the tax rate is the preceding taxable year's rate minus two-tenths percent ( 0.2%); or

(3) At least five and three-tenths (5.3%), the tax rate is the preceding taxable year's rate minus three- tenths percent (0.3%)

Section 2. {Determining Increase in net adjusted gross income tax revenue}

(A) Before September 1 of each even-numbered year, the Budget Agency shall determine whether an increase in net adjusted gross income tax revenue has occurred using two (2) year average. In making this determination, the following shall be used:

(1) Returns processed during the three (3) calendar years that immediately precede the determination year.

(2) Net adjusted gross income tax revenue collected from all taxpayers under this article on these returns.

(3) Overpayments refunded to taxpayers during these calendar years shall be subtracted.

(4) The best information available to the Budget Agency at the time the determination is made.

(B) Beginning in year __ , the Budget Agency shall compute two (2) year average and determine whether an increase has occurred and, if so, the amount of the two (2) year average percentage increase in revenue. The Budget Agency shall certify the results of the computation to the department of state revenue.

Adopted by the Tax and Fiscal Policy Task Force at the Spring Task Force Meeting on April 23, 2010.

Approved by the ALEC Board of Directors on June 3, 2010

Summary

The Automatic Income Tax Rate Adjustment Act provides for a reduction in the state income tax rate on residents, nonresidents, and corporations if year-over-year revenue from the income tax exceeds certain amounts.

Model Policy

Section 1. {Adjustment Rate}

(A) In any fiscal year in which the amount of selected actual state general fund receipts from such fiscal year exceeds the selected actual state general fund receipts for the immediately preceding fiscal year by more than 2 percent, the director of legislative research [or equivalent officer] shall certify such excess amount to the secretary of revenue and the director of the budget [or equivalent officers]. Upon receipt of such certified amount, the secretary shall compute the excess percentage increase in selected actual state general fund receipts above 2 percent. Based on such excess percentage of calculation receipt growth, the secretary shall compute the income tax rate reductions to go into effect for the next tax year that would reduce by such certified amount the tax rates during the fiscal year after the next fiscal year according to the provisions of this section as follows:

(1) Rate reductions for individual income tax rates shall be applied to reduce the highest marginal income tax rate applicable to the current tax year, by such excess percentage minus 0.5 percent, and the lowest marginal income tax rate applicable to the current tax year by such excess percentage plus 0.5 percent, except that in no case shall such excess percentage plus 0.5 percent result in an income tax rate increase. In any such computation by the secretary pursuant to this subsection:

(i) The resulting income tax rate shall be rounded down to the nearest 0.1 percent; and

(ii) in any case in which the income tax rate for any individual marginal income tax rate is below 0.4 percent, such rate shall be 0 percent.

(2) Upon all individual marginal income tax rates being reduced to 0 percent pursuant to the provisions of subsection (A)(1), rate reduction next shall be applied for the surtax on corporations applicable to the current tax year by such excess percentage. In any such computation by the secretary pursuant to this subsection in which the surtax is below 0.4 percent, such surtax rate shall be 0 percent.

Section 2. {Severability clause.}

Section 3 {Repealer clause.}

Adopted by the Tax and Fiscal Policy Task Force at the Spring Task Force Summit on April 23, 2010.

Approved by the ALEC Board of Directors on June 3, 2010.

Amended by the Task Force on Tax and Fiscal Policy at the Spring Task Force Summit on May 15, 2015.

Approved by the ALEC Board of Directors on June 29, 2015.