Fiscal Note & Local Impact Statement
127 th General Assembly of Ohio
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CONTENTS: |
Exempt from
the personal income tax local, state, and federal
government employee and military retirement benefits |
|
STATE FUND |
FY 2008 |
FY 2009 |
FY 2010 |
|
General Revenue Fund |
|||
|
Revenues |
$92.4 million loss |
$134.9 million loss |
|
|
Expenditures |
- 0 - |
- 0 - |
- 0 - |
Note: The state
fiscal year is July 1 through June 30.
For example, FY 2007 is July 1, 2006 – June 30, 2007.
·
Income
tax exemption reduces the income tax base, thus reducing state income tax
revenue. The exemption may reduce the
amount claimed for the retirement income credit, which would reduce the revenue
loss.
·
The
General Revenue Fund would bear 94.1% of the revenue loss.
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LOCAL
GOVERNMENT |
FY 2008 |
FY 2009 |
FY 2010 |
|
|
Counties, municipalities,
townships, and libraries (LGF, LLGSF) |
||||
|
Revenues |
$3.2 million loss |
$5.8 million loss |
$8.5 million loss |
|
|
Expenditures |
- 0 - |
- 0 - |
- 0 - |
|
|
School Districts |
||||
|
Revenues |
$2.7 million loss |
$4.8 million loss |
$7.0 million loss |
|
|
Expenditures |
- 0 - |
- 0 - |
- 0 - |
|
Note: For most local governments, the fiscal year is the calendar year. The school district fiscal year is July 1 through June 30.
·
Income
tax exemption reduces the income tax base, thus reducing state income tax
revenue. The exemption may reduce the
amount claimed for the retirement income credit, which would reduce the revenue
loss.
·
The
Local Government Fund (LGF) would bear 3.68% of the revenue loss and the
Library and Local Government Support Fund (LLGSF) would bear 2.22% of the revenue
loss.
·
School
district income tax revenue is reduced due to a reduction in the tax base.
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|
The proposed Ohio income tax
exemption is for specified amounts of local, state, and federal government and
military retirement benefits. The
amount of exemption is not more than $4,000 for taxable years beginning in
2007, $7,000 for taxable years beginning in 2008, and $10,000 for taxable years
beginning in or after 2009. The
exemption is available to all local, state, and federal retired employees and
to military personnel with retirement benefits under the following:
(1)
Five
Ohio retirement systems—Public Employees Retirement System (PERS), State
Teachers Retirement System (STRS), School Employee Retirement System (SERS),
Police and Fire Retirement System (OP&F), and Highway Patrol Retirement
System (HPRS);
(2)
Federal
Employees' Retirement System or Federal Civil Service Retirement System;
(3)
Military
retirement benefits for service in the United States Army, Navy, Air Force,
Coast Guard, Marine Corps, National Guard, and the Reserves.
Retirement statistics were
collected for 2006 from various official sources, and gaps in data were filled
using previous years' growth rates. For
projections of the number of retired employees living in Ohio, LSC used
population growth rates for the 65-69 age group in Ohio (Global Insight,
2007). Using projected average benefits
received by the retirees, effective income tax rates as per H.B. 66 of the
126th General Assembly, and the proposed exemption amounts, the revenue loss
was estimated for tax years 2007 through 2009.
The estimated income tax revenue loss is approximately $54.9 million for
tax year 2007, $98.2 million for tax year 2008, and $143.4 million for tax year
2009. The table below provides a summary
of the estimates.
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Estimated Revenue Loss From Income Exemption For |
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|
Tax Year |
Number of Retirees |
Amount of Deduction ($) |
Loss of Revenue |
Loss to GRF |
Loss to Local Government Funds |
Loss to School Districts |
|
2007 |
446,171 |
$4,000 |
$54.9 |
$51.6 |
$3.2 |
$2.7 |
|
2008 |
456,164 |
$7,000 |
$98.2 |
$92.4 |
$5.8 |
$4.8 |
|
2009 |
466,415 |
$10,000 |
$143.4 |
$134.9 |
$8.5 |
$7.0 |
Impact on current retirement
income credit claimed. The maximum
retirement income tax credit that can be claimed is $200 for retirement income
of $8,000 and above. The average
retirement income of this group of retirees (i.e., government and military)
even after the proposed maximum deduction of $10,000 would be above the maximum
income limit of $8,000 for claiming the maximum retirement tax credit. Thus, the amount of retirement tax credit
that can be claimed is assumed to be unaffected by the proposal.
Impact on GRF and local
government funds. Based on the formula enacted in
H.B. 119 of the 127th General Assembly, the General Revenue Fund (GRF)
would bear 94.1% of the loss of Ohio income tax revenue, the Local Government
Fund (LGF) would bear 3.68% of the revenue loss, and the Library and Local
Government Support Fund (LLGSF) would bear 2.22% of the revenue loss. Assuming that the loss for a given tax year
falls in the following fiscal year, the loss to the GRF from the reduction in
personal income tax revenue will be approximately $51.6 million in FY 2008,
$92.4 million in FY 2009, and $134.9 million in FY 2010. The local government funds (LGF and LLGSF)
also will be adversely impacted as indicated in the table above. The estimated combined loss to the local
government funds would be $3.2 million in FY 2008, $5.8 million in FY
2009, and $8.5 million in FY 2010.
Impact on school district
revenue. Because the proposal involves a deduction
from retired taxpayers' taxable income, it reduces the tax base for some school
district income taxes. Using the
average school district tax rate of 1.44% and the percentage share of OAGI
affected by school district income taxes, the estimated revenue loss from this
proposal is approximately $2.7 million in FY 2008, $4.8 million in FY
2009, and $7.0 million in FY 2010.
LSC fiscal staff: Isabel Louis, Economist