Update: Comparison of Revenue Proposals
Both chambers of the State Legislature have now passed revenue measures needed to maintain basic public services like health care and education while the economy recovers.
While these packages are an important step toward addressing our economic problems, both are insufficient given the scale of the current crisis. The current Senate proposal would generate about $890 million in new resources while the House proposal would increase revenues by $680 million -- $70 million less than the earlier version approved by the House Finance Committee. It's important to note that even under the larger Senate proposal, revenue increases would account for only 10 percent of total actions taken to close the $11.7 billion shortfalls in the FY2009-11 biennium.
The proposals
The Senate approved its proposal, SB 6143, last Sunday (March 7th). Last night, the House passed a completely different version of SB 6143. The table below provides an overview of the Senate and House proposals. To view a pdf of the table, click here.
Common Elements
Both versions of SB 6143 would limit or eliminate large exemptions and loopholes. These include: Repealing the direct sellers' B&O exemption and retroactively fixing the Dot Foods case; adopting economic nexus (for more information see the schmudget post "What is 'Economic Nexus' and Why Do I Care?");giving DOR greater authority to reign-in abusive tax avoidance transactions; repealing the sales tax exemption on bottled water; and repealing a number of smaller exemptions and preferential tax rates. Both measures would also increase the cigarette tax, though the House version would raise more money by increasing taxes on other tobacco products as well.
Senate Proposal
The Senate proposal would raise a total of $890 million. In addition to the exemptions and loopholes in common with the House version, the Senate proposal includes two temporary general tax increases: a 0.3 percentage point increase in the state sales tax ($313 million); and a 0.25 percentage point increase in the B&O tax rate applied to service industries ($170 million).
The Senate measure also includes the Working Families Tax Rebate (WFTR) - a rebate program for lower-and moderate-income families based on the Federal EITC. (For more information on the WFTR, click here.) Along with a number of smaller actions, the Senate proposal would also extend the sales tax to include coal used at coal-fired electricity facilities.
House Proposal
Overall, the House approach would generate about $682 million in new revenues in FY2011. The current House proposal relies heavily on limiting or eliminating tax exemptions and preferences such as capping a deduction claimed by banks on interest earnings from first home mortgages. It would also extend the sales tax to include candy and custom software, and would repeal the exemption for nonresident shoppers. The measure does not include any general sales tax or B&O tax increases -- a key difference with the Senate proposal.
The House version of SB 6143 largely resembles HB 3191 -- the revenue package that was passed by the House Finance Committee on March 2nd. The new proposal contains a few important differences with HB 3191, however. Unlike the earlier version, the current House proposal would not limit the B&O exemption on investment earnings from nonfinancial firms. Nor would it extend the sales tax to janitorial services. While the new version partially compensates for these omissions by expanding the scope of services subject to the B&O surtax, the current House proposal would raise about $70 million less than the earlier measure.
