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Tax Measures

During the 2000 Regular Session the legislature did take two steps toward improving the elasticity and progressivity of the tax base. Elasticity has to do with how well the tax base grows in relation to personal income and progressivity has to do with how the tax is levied in proportion to wealth. The first step was the passage of HB 299 that reduced by half the amount of excess itemized deductions that can be taken when computing income tax liability. This is statutory law and does not need to be ratified by voters. The second step was the passage of HB 295 that eliminates the deductibility of federal income taxes in computing state income tax liability and lowers the rates while compressing the income brackets. This measure also repeals the state sales tax on food and utilities. HB 295 will only become law if voters ratify HB 73, which is a constitutional amendment, on November 7, 2000. HB 73 eliminates the constitutional mandate that federal income taxes be a deductible item in computing state income tax liability.

Another constitutional amendment, HB 98, also must be ratified in order for HB 295 and HB 73 to become law. This amendment would prohibit the levying of a state sales tax on food and utilities.

The following is the sequence that must occur in order for the legislation affecting the state income tax to become law:

• If HB 98 (prohibits a sales tax on food and utilities) is ratified by voters; then,
• HB 73 which eliminates the deductibility of federal income taxes in computing state income tax liability will become effective; and,
• If HB 73 becomes law, then HB 295 which establishes new rates and brackets for the state income tax, and eliminates the deductibility of federal income taxes and the $25 per child education tax credit will become law.