Today the Senate Finance Committee took another crack at their tax reform effort, approving a new version of tax reform legislation.
Notable elements of the new plan include:
- Phases down the personal income tax to a flat rate of 5.75% – the previous Senate plan phased it down to 5.25%
- Creates a standard deduction of $15k for married filers or $7,500 for single filers – previous Senate plan created a “zero bracket” for income up to those amounts
- Allows for itemized personal income tax deductions; unlimited charitable deductions and a combination of mortgage interest and property taxes allowed up to $15k. Filers can choose either to itemize or use the standard deduction. The last Senate plan did not allow for itemized deductions
- Would completely exempt Social Security income from taxation, the previous Senate plan would have taxed Social Security income in the same manner as the federal tax code
- Elimination of the corporate income tax, to be phased out by 2018. The earlier Senate plan would have phased the tax out by 2017.
- Phases out the franchise tax and replaces with a new business privilege tax. The privilege tax would be a flat fee of $3,500 for corporations and $500 for all other businesses with limited liability as of 2018. The previous Senate plan would have included a business privilege fees of $5,000 and $750, respectively.
- General sales tax rate remains the same, adds in service contracts into the sales tax base, along with eliminating some sales tax exemptions like amusements, and sales tax holidays.
- The new Senate plan does not eliminate food from the local sales tax base.
- Would cap the amount of sales tax refunds nonprofits can take, the cap begins in 2014-15 at $10.5 million and phase down to $2.85 million (combined state and local sales tax refunds)
- Caps the gas tax at the current rate beginning Sept. 1, 2013 through July 1, 2014
- Directs the Revenue Laws Study Committee to examine several tax issues and report to the legislature in 2014. The issues include: the scope and application of the 1% privilege tax on mill machinery and other equipment; the feasibility of a special sales tax rate on diesel fuel sold to railroads, passenger air carriers and motorsports; the authority of cities and counties to impose privilege taxes; the potential elimination of sales tax refunds for nonprofits; the feasibility of expanding the sales tax base to services
- The current Senate plan is a smaller tax cut than the previous plan. The new plan is projected to generate about $3.28 billion less in revenue compared to projected revenue from the current tax code over the next five years. The earlier Senate plan would have reduced revenue by $4.6 billion.