DEPARTMENT
OF
AUDITS
AND
ACCOUNTS
270 Washington Street, S.W., Suite 4-114
Atlanta, Georgia 30334-8400
270 Washington Street, S.W., Suite 4-114
Atlanta, Georgia 30334-8400
Russell W.
Hinton
State Auditor
(404) 656-2174
State Auditor
(404) 656-2174
April
17, 2007
Honorable Chip Rogers,
Chairman
Senate Finance Committee
Coverdell Legislative Office Building, Room 325-B
Atlanta, Georgia 30334
Senate Finance Committee
Coverdell Legislative Office Building, Room 325-B
Atlanta, Georgia 30334
SUBJECT: Fiscal
Note
House
Bill 225
Substitute
(LC 18 6428-ECS)
(LC 18 6428-ECS)
Dear
Chairman Rogers:
This
bill would change certain provisions regarding the amounts of retirement income
that may be excluded from Georgia taxable net income and the requirements
regarding such exclusions. The excludable amount would increase annually for
those aged 65 or older until 2013 when there is no cap on the excludable amount.
This bill would also change certain provisions regarding the deduction for
contributions to Internal Revenue Code Section 529 college savings plans,
effective for taxable years beginning on or after January 1, 2007.
The
Georgia State University Fiscal Research Center provided the following narrative
on the revenue impact of this bill:
This
legislation has two provisions. First, it would expand the current income
exclusion for certain retirement income. Second, it would alter the provisions
regarding tax treatment of contributions to college retirement
plans.
Under
current Georgia law, a portion of retirement income for those 62 years of age or
older is excluded from state income tax. The exclusion is capped at $30,000 per
person in tax year 2007 and ramps up to $35,000 in tax year 2008. The taxpayer
may include up to $4,000 of earned income in the amount excluded. This
legislation would phase in a complete exclusion of retirement income for those
65 years of age or older beginning in 2009. This exclusion retains the current
provision regarding earned income.
The
phase-in schedule under this legislation is:
|
Year
|
Exclusion
Amount
|
|
2009
|
$65,000
|
|
2010
|
$100,000
|
|
2011
|
$150,000
|
|
2012
|
$200,000
|
|
2013
|
No
Cap
|
Census
Bureau data was used to determine the number of elderly and the amounts of
social security, wage and non-wage income received by the elderly. This data
was stratified by income levels to provide an income distribution. Income
levels were reduced by the $35,000 income exclusion and by social security
income since it is also excluded from income. Estimates of standard and
itemized deductions were also subtracted to estimate taxable income by income
level. The Census Bureau data indicated much higher levels of elderly income
than measured by Georgia income tax return data. Therefore, the estimated
income was reduced by a factor of 40% to account for this difference. Finally,
specific tax rates by income level were used to determine the tax revenue for
each income level.
The
table below summarizes the expected revenue decrease due to the expanded income
exclusion.
|
Year
|
Tax
Revenue Decrease
|
|
2009
|
$
14,144,674
|
|
2010
|
$
27,203,680
|
|
2011
|
$
80,646,848
|
|
2012
|
$
104,467,133
|
|
2013
|
$
142,370,020
|
The
second provision affects contributions to college savings plans. Under current
Georgia law, contributions to the Georgia Higher Education Savings Plan (GHESP)
may be deductible from Georgia taxable income up to a maximum of $2,000 a year
per beneficiary. The maximum deduction for each beneficiary decreases by $400
for each $1,000 of federal adjusted gross income over $100,000 for a joint
return or $50,000 for a separate or single return, and is available when an
itemized Georgia and federal income tax return is filed.
This
proposal would eliminate the current phase-out of the deduction based on
adjusted gross income. In addition, it would allow others beyond parents and
guardians who claim the beneficiary as a dependent to claim the deduction. It
also eliminates the requirement that those claiming the deduction itemize
deductions on their returns. This proposal increases incentives to participate
and contribute to Georgia’s 529 College Savings Plan and takes a step to
bring the plan’s provisions in line with those of most other states’
plans.
TIAA-CREF
provided data and analysis regarding participants in Georgia’s plan. This
data includes distribution of accounts by income level, filing status and
exemptions. This data was used to determine the incremental impact of the
proposed legislation. The estimated reduction in individual income tax revenue
is:
|
2007
|
$2,500,438
|
|
2008
|
$2,843,558
|
|
2009
|
$3,207,925
|
|
2010
|
$3,588,074
|
These
estimates assume increased penetration of accounts in the plan due to the
improved incentives.
Sincerely,
/s/ Russell W.
Hinton
State Auditor
State Auditor
/s/ Shelley C. Nickel,
Director
Office of Planning and Budget
Office of Planning and Budget