State Revenue Secretary Dave Hardy gave the Joint Standing Committee on Finance an update regarding various state revenue matters Monday afternoon.
He told the committee that Moody’s bond rating agency has already responded favorably to the new law that cuts state income taxes by 21 percent and reforms the Public Employees Insurance Agency with premium increases.
“We were of course looking for this because we knew that if we did a tax reduction it would be noticed by our bondholders and our bond rating agencies,” Hardy said.
State Deputy Revenue Secretary Mark Muchow told committee members the reduction in the personal income tax, which was retroactive to Jan. 1, will cause the governor’s office to adjust the revenue collection estimates before the end of the fiscal year. He said it’s a delicate balance of the numbers because it’s likely some residents will take the extra take home money and purchase items.
Personal income tax rates could also see further reductions after Aug. 15, 2024 under the recently passed bill. The legislation includes a trigger formula for further reducing personal income tax rates by comparing general revenue collections in a previous fiscal year minus severance tax collections compared to the base year of fiscal year 2019 and tied to the non-seasonally adjusted consumer price index.
If the general revenue collections minus severance tax collections exceed the adjusted base year, a reduction would be triggered. Personal income tax rate reductions would be limited to no more than 10 percent during any fiscal year.
Muchow noted that nine months into the fiscal year total revenues have outpaced estimates by $1.26 billion. The Justice administration has predicted the revenue collection surplus could reach $1.7 billion by July 1.
Hardy told lawmakers the state’s financial standing is strong and likely to stay that way, noting that revenues are performing at “historic levels.” He said he and other state finance officials will continue to watch the personal income tax line and watch the effect of the tax cut.