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Under the Dome - May 15, 2013

Staring contest over?

Call it a blink if you want but this morning the House announced a Tax Conference Committee meeting - the first of the six-day-old veto session. Up until now, discussions were being held in secret and including just the Governor and leadership of the House and Senate.

No one was expecting much to happen when the conference committee met at 1:30 this afternoon but much to our surprise, the House came in with a new offer on the big items that have been holding things up.

The biggest sticking point was the sales tax. The increase passed under Governor Parkinson is set to sunset. The Governor wants the increase made permanent. The Senate agreed to that but the House had not. In the latest offer, the House would let the sales tax increase partially sunset - setting the new rate at 6% instead of the 6.3% called for by the Senate bill.

The House also changed their offer on income tax reductions. They had passed further income tax reductions tied to a formula based on increases in revenue collections due to improved economic activity. Their new offer would statutorily phase in reductions in the rates from 2013 through 2017.

Here's a look at the proposed rates.

Brackets             Rate under      House                 Senate passed 
                                current law    proposal                bill

Bottom 2013         3.0%                    3.0%                        3.0%
Top 2013                 4.9%                    4.9%                        4.9%

Bottom 2014        3.0%                    2.7%                        2.5%
Top 2014                 4.9%                    4.9%                        4.9%

Bottom 2015            3.0%                    2.7%                        2.5%
Top 2015                 4.9%                    4.8%                        4.9%

Bottom 2016        3,0%                    2.25%                        1.9%
Top 2016                 4.9%                    4.8%                        4.9%

Bottom 2017        3.0%                    2.1%                        1.9%
Top 2017                 4.9%                    3.8%                        3.5%

Bottom 2018        3.0%                    2.1%                        1.9%
Top 2018                 4.9%                    3.8%                        3.5%


The new House proposal gives all itemized deductions "haircuts." They would reduce itemized deductions by a statutorily set percentage rising each year from 2013 through 2017. In 2013 they would be reduced by 24%; 35% in 2014; 40% in 2015; 50% in 2016; and 60% in 2017 and thereafter. Essentially the deduction gets smaller every year essentially offsetting at least a portion of the income tax rate reduction. The only exception to this is the deduction for gaming losses which would be eliminated entirely in 2013.

Standard deductions in the House offer are reduced over current law while the Senate maintains the higher standard deductions. Currently the standard deduction for Head of Household and Married filing jointly is $9,000. The House would make the Head of Household deduction $5,000 and Married filing jointly $6,500.

The House maintains the repeal of the adoption tax credit which is restored in the Senate. The House would also partially restore the repeal of the food sales tax rebate for the poor while the Senate maintains the repeal of this credit.

Senate negotiators (Senators Donovan, Tyson, and Holland) will take the offer under consideration, discussing it with Senate leadership before decided whether to accept, reject, or counter the offer.

Based on fiscal analysis, both plans are believed (using certain economic growth assumptions) to generate additional revenue between $225 and $316 million in 2014, 2015, and 2016. The revenue increase drops to just under $30 million in 2017 and becomes a revenue reduction of $309 million in the House version and $381 million in the Senate version in 2018.

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