02/03/2022 03:00 PM House STATE AFFAIRS

            HB 158-PFD CONTRIBUTIONS TO GENERAL FUND                                                                        
                                                                                                                                
3:38:49 PM                                                                                                                    
                                                                                                                                
CHAIR KREISS-TOMKINS announced that the final order of business                                                                 
would be HOUSE BILL NO. 158, "An Act relating to contributions                                                                  
from permanent fund dividends to the general fund."                                                                             
                                                                                                                                
3:39:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PRAX, Alaska  State  Legislature, prime  sponsor,                                                               
reintroduced  HB  158.    He   presented  the  sponsor  statement                                                               
[included  in  the  committee  packet],  which  read  as  follows                                                               
[original punctuation provided]:                                                                                                
                                                                                                                                
                                                                                                                                
     House Bill  158 sets  up a  mechanism to  give Alaskans                                                                    
     the  choice  of donating  all  or  a portion  of  their                                                                    
     Permanent  Fund   dividends  (PFDs)  directly   to  the                                                                    
     state's general  fund. Participants  can donate  from a                                                                    
     minimum  of $25  to the  full  amount of  their PFD  in                                                                    
     increments of $25.                                                                                                         
                                                                                                                                
     A donation  to the  State General  fund, in  some case,                                                                    
     can  be counted  as a  charitable donation  for federal                                                                    
     tax  purposes. It  is advised,  however, that  Alaskans                                                                    
     consult with a tax professional  to verify how this may                                                                    
     apply to them individually.                                                                                                
                                                                                                                                
     Donations  through  HB  158  are  subject  to  a  seven                                                                    
     percent administrative  fee paid to the  Permanent Fund                                                                    
     Dividend   Division.  HB   158   also  clarifies   that                                                                    
     donations through Pick.Click.Give.,  take priority over                                                                    
     donations to the general fund if there is a shortfall.                                                                     
                                                                                                                                
3:43:30 PM                                                                                                                    
                                                                                                                                
CHAIR KREISS-TOMKINS invited questions from the committee.                                                                      
                                                                                                                                
3:43:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE STORY  said she had  heard from  constituents that                                                               
when they  chose not  to receive  a PFD,  they thought  they were                                                               
saving  the state  money; however,  she learned  in clarification                                                               
that  in  actuality, their  dividend  would  be redistributed  to                                                               
recipients  instead of  going to  the state.   She  asked whether                                                               
that explanation is correct.                                                                                                    
                                                                                                                                
REPRESENTATIVE  PRAX  confirmed   that  currently,  the  dividend                                                               
amount  is determined  by an  appropriation  process wherein  the                                                               
total amount  is divided by the  number of PFD applications.   He                                                               
stated  if an  individual chooses  not to  apply, the  money that                                                               
he/she is otherwise entitled to,  would be redistributed to those                                                               
who did  apply.   He explained  that presently,  the only  way to                                                               
return a  dividend to  the general  fund is  to first  accept the                                                               
dividend check  and either write a  second check to the  state or                                                               
return it  to DOR.   Therefore,  HB 158 would  make it  easier to                                                               
exercise  the  option  of  returning  all or  a  portion  of  the                                                               
dividend back to the general fund.                                                                                              
                                                                                                                                
3:45:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE CLAMAN  pointed out that [everyone]  looks at ways                                                               
to reduce their tax burden  on an individual level; consequently,                                                               
he  asked  Representative  Prax  whether he  thinks  the  PFD  is                                                               
treated  as ordinary  income, as  opposed to  wages, in  that the                                                               
average  person  pays  about  20  percent  tax  on  the  dividend                                                               
regardless of how much money they make.                                                                                         
                                                                                                                                
REPRESENTATIVE  PRAX   said,   thats    close  enough    [to  his                                                               
understanding].                                                                                                                 
                                                                                                                                
3:48:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE CLAMAN remarked:                                                                                                 
                                                                                                                                
     Its  this kind  of interesting dynamic that  if I apply                                                                    
     for my  dividend and  get approved and  I get  a 1,000-                                                                    
     dollar dividend and I immediately  give that money back                                                                    
     to the  state, I will  pay the government 20  percent                                                                      
     200  dollars -  for  the privilege  of having  received                                                                    
     1,000 dollars  [and] give it back to the state.                                                                            
                                                                                                                                
REPRESENTATIVE CLAMAN  expressed his concern because  the receipt                                                               
of  that dividend,  even for  a split  second before  immediately                                                               
returning  it,   stands  to  be   taxed.    He  added   that  the                                                               
 deductability   reduces some  of  the tax  burden,  but the  tax                                                               
incurred as  a taxpayer would  still be greater than  what he/she                                                               
would receive from the deduction.                                                                                               
                                                                                                                                
REPRESENTATIVE PRAX argued that  the point made by Representative                                                               
Claman is a  separate consideration.    He remarked,  If there is                                                               
money appropriated  and someone  wants to  give that  money back,                                                               
this makes it easier for them to do that.                                                                                       
                                                                                                                                
REPRESENTATIVE CLAMAN agreed on  some level; however, he recalled                                                               
that according to  his tax accountant, a  tax deduction generally                                                               
results   in  savings   of  20-35   percent  of   the  deduction.                                                               
Therefore,  if  an individual  gives  an  organization $100,  the                                                               
reduction in  the tax  owed is  $20 to $35,  as opposed  to $100.                                                               
Consequently, the  process of giving  to the government  would be                                                               
made easier, but those selecting  that option would be paying the                                                               
federal  government  more  than  $100 dollars  depending  on  the                                                               
dividend amount.                                                                                                                
                                                                                                                                
REPRESENTATIVE  PRAX acknowledged  that it  would be  an itemized                                                               
deduction, not a tax credit.                                                                                                    
                                                                                                                                
3:50:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CLAMAN shared  his  understanding  that folks  in                                                               
less  advantageous economic  positions would  be unlikely  to see                                                               
any  benefit from  the deduction,  as  the size  of the  standard                                                               
deduction is  so large for  lower income families.   He explained                                                               
that lower income  families are unlikely to donate  the amount of                                                               
money that would ever make  the  deductability  of their dividend                                                               
worthwhile.                                                                                                                     
                                                                                                                                
REPRESENTATIVE  PRAX  replied,   Yes,  I  get  it,  that  is  the                                                               
arithmetic of it.    He believed that the  real   debate from the                                                               
legislatures   standpoint  is  whether everyone  considers  state                                                               
services  equally  valuable.     He  posited  that  the  proposed                                                               
legislation would  give those who  value state services  a choice                                                               
to return  their PFD to the  general fund.  He  remarked,  Rather                                                               
than the legislature deciding for  someone to   from somebody who                                                               
thinks  the service  is less  valuable  to them    theyre   being                                                               
forced to pay for the service.                                                                                                  
                                                                                                                                
CHAIR  KREISS-TOMKINS shared  his  understanding  that the  point                                                               
made  by  Representative  Claman  is  that  rather  than  someone                                                               
receive the PFD, give it back  to the state, and have the federal                                                               
government  tie the  money,  there may be some  logic in reducing                                                               
the  PFD amount,  thereby having  the  same effect  of the  state                                                               
keeping  a portion  of  the PFD  without  the federal  government                                                               
taking a chunk out.   He asked Representative Claman whether that                                                               
was an accurate summary.                                                                                                        
                                                                                                                                
REPRESENTATIVE  CLAMAN answered,   partly.     He explained  that                                                               
fundamentally,  the fact  that  people pay  20  percent of  their                                                               
dividend to the federal government  is routinely forgotten in the                                                               
PFD discussion.   He argued that the debate cant   be had without                                                               
acknowledging that this  is not a straight cash  transaction.  He                                                               
opined that everyone is losing in the proposed equation.                                                                        
                                                                                                                                
3:55:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR,  referencing   the  document  titled,   PFD                                                               
Deductions Priority  Order  [included  in the  committee packet],                                                               
asked whether  any other mechanisms  were pursued to  address the                                                               
challenges that have been discussed.                                                                                            
                                                                                                                                
REPRESENTATIVE PRAX  said if HB 158  is adopted, it would  be the                                                               
next bullet  point at  the bottom  of the  list.   Therefore, the                                                               
return  to  the  state  would  be  the  lowest  priority   if  an                                                               
individual tried to donate more than he/she received.                                                                           
                                                                                                                                
3:56:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  EASTMAN suggested  that the  language on  page 1,                                                               
line  14,  which  provides  that   seven  percent  of  the  money                                                               
contributed  to  the   state  general  fund  will   be  used  for                                                               
administrative  costs, is  not  necessary, as  the  money is  not                                                               
actually leaving the state coffers.                                                                                             
                                                                                                                                
REPRESENTATIVE PRAX confirmed  that the money is  going  from one                                                               
pocket  to  another  pocket;   however,  he  explained  that  the                                                               
Permanent  Fund  Dividend Division  goes  through  extra work  to                                                               
administer this, which is where the 7 percent comes in.                                                                         
                                                                                                                                
CHAIR KREISS-TOMKINS announced that HB 158 would be held over.