SB 5 – Income Tax Rate Adjustment

SB 5 would provide for an automatic reduction in the income tax rate if the state’s income tax receipts for a year exceed the previous year’s receipts by a certain amount.

A 3.1% increase in revenue results in a 0.1% reduction in the tax rate; a 4.2% increase results in a 0.2% reduction; and a 5.3% increase results in a 0.3% reduction. The statute sets certain floors for the income tax rate. The adjustment is only one way – if there is a decrease in revenue, the tax rate doesn’t automatically increase. Presumably, this would result in a ratcheting down of tax rates over the long haul until we hit the floor of 2.9% for people and 8% for corporations. Decreases would be automatic during good times. And increases probably wouldn’t happen during lean times with legislators generally opposed to raising taxes and being able to argue that we shouldn’t increase taxes during tough economic times in any case.