Legislature(2015 - 2016)BELTZ 105 (TSBldg)
02/23/2016 06:00 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB134 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 134 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 134-INDIV. INCOME TAX: CREDITS; RETURNS
6:02:53 PM
CHAIR COSTELLO announced the consideration of SB 134. She noted
that this is the first hearing.
SENATOR GIESSEL joined the committee.
6:03:56 PM
KEN ALPER, Director, Tax Division, Department of Revenue (DOR),
introduced himself.
6:04:08 PM
BRANDON SPANOS, Deputy Director, Tax Division, Department of
Revenue (DOR), introduced himself and began the presentation on
SB 134 beginning with the history of income tax in Alaska. It
began in 1949 at 10 percent of the federal tax liability. By
1961, the tax was 16 percent of the federal tax liability. In
1975, Alaska decoupled from the federal tax liability and
attached its own tax brackets. Those rates ranged from 3 percent
to 14.5 percent of taxable income. Alaska repealed the personal
income tax in 1980 after the oil boom.
The Governor's proposal creates a tax on an individual's income.
The proposed rate is 6 percent of a person's federal income tax
liability. He displayed a chart to illustrate the effective
Alaska rate based on the federal taxable income rates from 10
percent to 39.6 percent. In the 10 percent bracket, the Alaska
rate would be 0.60 percent of the federal income.
6:05:42 PM
SENATOR GIESSEL asked in what bracket most Alaskans fall.
MR. SPANOS offered to follow up with the information.
MR. ALPER noted that DOR submitted a handout that has tables
showing the effective tax impact by different household size and
different income levels. That information would provide the
answer because both income level and household size would be a
factor. He added that federal tax rates are marginal rates,
meaning the lowest X dollars are at the lowest rate and the next
set of dollars are at the next higher rate. To a certain extent,
Alaska's tax would be a blended average of those things.
CHAIR COSTELLO asked for an explanation of the policy decision
to establish 6 percent.
MR. ALPER explained that if all the other cuts and tax proposals
were to pass, this last piece completes a balanced budget; it
would generate the desired $200 million. He noted that Alaska
would have the lowest income tax rate of those states that have
a tax.
CHAIR COSTELLO asked if she's to assume that the administration
might increase the rate if some of the other tax proposals don't
pass.
MR. ALPER said he didn't believe so, but the members should be
mindful that the intent of the number in the bill is that it's
part of a complete package that gets to a balanced budget.
SENATOR STEVENS asked what state has the highest tax rate.
MR. ALPER told the members that there are two attachments for
state income tax. A few, including Alaska, are attached to the
idea of federal income tax liability. That is a flat rate that
builds the federal government's progressivity into the state
tax. Most states tie their income tax to adjusted gross income
so it's a smaller percentage of a larger number.
6:10:36 PM
MR. SPANOS offered to follow up with the requested information
about ranking.
He displayed a chart showing the 2016 federal tax brackets and
proposed Alaska effective rates on taxable income for single
filers, married joint filers, and head of household.
SENATOR GIESSEL recalled that the Governor said 43 percent of
Alaskans would have no tax liability under this proposal.
MR. SPANOS said that estimate is based on Internal Revenue
Service (IRS) data that shows that 43 percent of Americans do
not pay income tax.
SENATOR GIESSEL asked for confirmation that it could be a higher
percent; "You're actually not sure."
MR. SPANOS said that's correct; DOR isn't sure based on the
available data.
MR. ALPER added that the percentage of people paying zero tax at
the federal level has increased over the last 20-30 years as the
federal tax code has become more complicated. There are a lot
more credits, the most prominent being the earned income tax
credit and the child tax credit that tend to zero out the tax
liability of lower income individuals. The same structure would
carry through to the Alaska state tax.
CHAIR COSTELLO asked Mr. Spanos to go through a sampling of the
tax chart to show what this would mean for individual Alaskans
and families.
MR. SPANOS noted that the document was available online. He said
there are a lot of assumptions built into the calculations and
the following are estimates.
· A married couple filing joint with no children and a
$50,000 gross income would pay a total tax of $208.
· For a married couple filing jointly with two children and
$50,000 gross income, the child tax credit applies and they
would pay $15.
· For a married couple filing jointly with three children and
$50,000 gross income, the child tax credit applies and they
would pay no tax.
· A single person with no children and $50,000 gross income
would pay Alaska income tax of $341.
· A single person with no children and $20,000 gross income
would pay $59.
· A single person with no children and $100,000 gross income
would pay $1,091.
· A married couple with $100,000 gross income and 3 children
would pay $369.
· A married couple with $20,000 gross income and 3 children
would pay no tax.
· A single parent filing as head of household with two
children and $50,000 gross income would pay $97.
· A single parent filing as head of household with two
children and $100,000 gross income would pay $791.
· A single parent filing as head of household with two
children and $20,000 gross income would pay no tax.
CHAIR COSTELLO asked the average income of most Alaskans, either
single or married with children.
MR. SPANOS said these charts are based on estimates and the
model is based on information from the IRS. He wasn't sure if
the IRS breaks it down by tax filers but he would check and
follow up.
6:16:56 PM
MR. SPANOS said the proposed tax applies to nonresidents who
earn income from a source in Alaska. Residents who earn income
from a source outside Alaska would receive a credit for taxes
paid in other states.
SENATOR STEVENS asked how much revenue is expected from
nonresident workers who earn income from a source in Alaska.
6:18:05 PM
MR. ALPER said DOR is using information from the Department of
Labor and Workforce Development and the estimate is that about
15 percent of the people who work in Alaska don't live here.
Roughly that percentage of the total is expected to come from
nonresidents, but there will be an offset from the income from
Alaskans that is earned in other states. He added that what's
interesting with this tax is that it captures a lot of types of
income that aren't generally considered wage income. For
example, the earnings of partnerships and S corporations
currently are not taxed in Alaska. If they were Alaska-based
entities, the owners would pay this income tax.
SENATOR STEVENS asked if they'd have an answer to the question
at some point.
MR. SPANOS said the Department of Labor and Workforce
Development has amounts, but it's difficult to determine what
the federal tax would be. He agreed to come up with an estimate.
SENATOR STEVENS called that important information for Alaskans
to know.
MR. ALPER advised that the 15 percent figure is what is built
into the model. That is the percentage of the nonresident
workforce and at the very least 15 percent of the taxes should
come from that source. He added that those are a mix of above
average oil jobs and below average tourism jobs, and the
weighted average is probably close to the average. He offered to
follow up with more precise numbers as the process moves along.
SENATOR STEVENS calculated that 15 percent of $200 million
$30,000,000.
6:20:25 PM
MR. SPANOS continued the presentation pointing out that the bill
also proposes a withholding element of the tax.
He displayed a bar chart of estimated Alaska tax for a married
couple filing jointly with 2 children based on gross income
ranging from $20,000 to $100,000. The estimated tax on gross
income of $50,000 would be $15 and the tax on $100,000 would be
$465.
The subsequent bar chart estimates the Alaska tax for someone
filing as head of household with 2 children based on income
ranging from $20,000 to $100,000. The estimated tax on gross
income of $40,000 would be $7, the tax on $50,000 would be $97,
and the tax on $100,000 gross income would be $791.
6:21:24 PM
SENATOR MEYER asked if rental income and the PFD would be taxed
at the state level.
MR. SPANOS said it depends on the individual but all income
generally is subject to tax, with many exceptions. For example,
the interest on federal bonds is excluded from state tax.
SENATOR MEYER asked if $50,000 gross income is a general
threshold for paying taxes.
MR. ALPER said it varies by filer status, but that's about the
crossover between paying and not paying taxes. He added that the
proposal is for 6 percent of gross income but the complexities
come in when an individual has income from more than one state.
CHAIR COSTELLO asked how many Alaskans receive income from more
than one state.
MR. SPANOS said DOR is still analyzing that but isn't sure
there's enough accurate data at this point. The state is
starting to receive information from the IRS that is specific to
the taxpayer, and DOR may be able to analyze W-2 information
based on the address of the payer, which may or may not tell
where the income was earned.
6:24:39 PM
MR. SPANOS noted that of the 43 states that currently have an
income tax, Alaska's rate would be the lowest and North Dakota
would be second lowest. The average state income tax is about 30
percent of the federal liability, which is five times Alaska's
proposed rate. Six states would still have zero state income tax
and two states tax only dividends and interest.
Income from subchapter S corporations and partnerships will be
taxed. This pass through income is reported on an individual's
federal tax return and would therefore be taxed at the state
level. Alaska has a corporate income tax and S corporations are
excluded from that tax federally so they currently are not
subject to tax. He noted that if an S corporation is owned by a
corporation, it may be subject to the tax. Income earned in
Alaska by both nonresidents and residents will be taxed under
the proposed bill. A rough estimate is that 45 percent of
Alaskans would pay no tax.
6:26:28 PM
CHAIR COSTELLO questioned the fairness if only 45 percent of
Alaskans would pay a state income tax.
MR. SPANOS replied the administration wants to be fair in its
approach and many different options have been proposed. This is
a progressive tax so that those who are most able to pay the tax
will pay the tax.
CHAIR COSTELLO asked if that policy call runs through all the
tax bills, because the committee heard that the tobacco tax is
regressive and it fills 1 percent of the deficit.
MR. ALPER said there are a range of types of tax bills and the
alcohol and tobacco taxes are regressive. Also, in the suite of
presentations there are proposals that might reduce the
permanent fund dividend, which in many ways is the most
regressive tax of all if one considers it a tax. That is an
issue of personal opinion and policy difference across the
spectrum, but if Alaskans are going to be asked to contribute
equally through reduced dividend on one side of the equation, on
the other end the proposal is to take a greater tax from those
with the most ability to pay. That is where income tax fits it,
sort of as a counterweight.
6:28:42 PM
MR. SPANOS continued the presentation saying that DOR estimates
that half of the budget gap ($100 million) would come in FY2017
through withholding. No tax returns would be filed until April
2018.
6:29:27 PM
CHAIR COSTELLO asked him to discuss whether or not the
administration considered exempting trusts; if not, do they
think it's important?
MR. SPANOS admitted the department is fairly inexperienced with
individual income taxes and he wasn't aware that the
administration knew about the trust issue prior to the bill
being drafted.
CHAIR COSTELLO asked if DOR's research team had done any
modeling on the economic impacts of the income tax. If not, she
asked if modeling would done and if he would provide that to the
committee.
MR. SPANOS agreed to provide an analysis of the model and noted
that it has a drag on the economy built in.
6:30:45 PM
SENATOR STEVENS asked if there would be an opportunity for late
filing similar to the federal rules.
MR. ALPER said the statutory due date would be in April the same
as the federal return. Penalty and interest is applied to any
tax due in April and not paid until the return is filed under an
extension, and he presumes the state would establish a similar
mechanism.
SENATOR STEVENS asked if there is a late filing provision in the
bill
MR. SPANOS said the bill allows the department to adopt the
federal statutes that have an April 15 filing and payment due
date. If the taxpayer receives an extension to file in October,
the tax is still due on April 15.
SENATOR STEVENS asked if a taxpayer would need to file an
extension for both the federal and state returns.
MR. SPANOS said the state's corporate income tax piggybacks the
federal statutes and a federal extension automatically applies
to the corporate tax return. He envisions the same thing for the
individual income tax.
6:33:13 PM
SENATOR GIESSEL asked if he's saying that withholdings would
begin January 2017, assuming the bill passes.
MR. SPANOS said that's correct.
SENATOR GIESSEL pointed out that the fiscal note indicates that
in the next 6 months DOR will put in place 44 full-time
employees, 16 part-time employees and the regulations.
MR. SPANOS said a minimum number of new employees would be
needed in FY2017 and they'd only develop the software to accept
withholding. The additional employees would come in waves and
the regulations would take some time to write.
SENATOR GIESSEL asked if the estimated $200 million in revenue
would be reduced by the cost of the new employees, the software
and the time factor.
MR. SPANOS said the $200 million is the gross amount and the
fiscal note reflects the net.
MR. ALPER said the cost to implement a personal income tax bill
is relatively fixed to the size of the tax itself.
CHAIR COSTELLO asked Mr. Alper to discuss the fiscal note.
6:35:27 PM
MR. ALPER pointed out that because it's a calendar year tax and
a fiscal year budgeting process, there is only $100 million in
revenue in FY2017 and not a full year of revenue in FY2018. The
cost of expert assistance to implement an income tax plan is
estimated to be $250,000. The estimated one time capital
appropriation is $14 million, based on DOR's recent experience
implementing a tax software system. DOR would like to bring back
that same contractor to add a new system alongside the existing
system. He estimated a couple of dozen programmers would be
working for a couple of years. DOR estimates 44 full time
employees and 16 part time employees which equates to 52 full
time equivalent positions. DOR expects that 80 percent of
taxpayers will file online, which roughly parallels the filing
percentages of the Permanent Fund Division. That still leaves
manual handling and data entry for about 80,000 paper returns.
The total staffing cost per year is in the neighborhood of $7
million.
CHAIR COSTELLO asked where these employees will come from.
MR. SPANOS said the hope is to find some expertise within
Alaska.
SENATOR STEVENS asked where the employees will be located.
MR. SPANOS said DOR anticipates that half will be located in
Juneau and half in Anchorage.
CHAIR COSTELLO mentioned housing availability and asked if much
thought had gone into where the employees should be located.
MR. SPANOS said it will be a continuing discussion.
MR. ALPER clarified that the full complement of 60 employees
aren't in the budget until FY2019, so there will be a couple of
years to recruit.
6:41:02 PM
MR. SPANOS said implementing an individual income tax in 18
months will be a significant challenge. Regulations would need
to be drafted and there would be a need to design, develop, and
test the technology to administer the tax. Based on numbers from
Vermont that has a similar population and non-resident workers,
DOR estimates that approximately 450,000 tax returns would be
filed annually. DOR estimates a $250,000 supplemental
appropriation for a contractor to work with the department on an
implementation plan. The estimated one-time capital
appropriation to build an income tax into the state's current
tax revenue system is $14,000,000. This includes withholding and
online filing. The annual staffing cost for 52 FTE employees is
about $6 million.
MR. SPANOS displayed two charts to show how the income tax fits
into the Governor's plan to close the budget gap. It fills the
last piece with $200 million in estimated receipts.
6:42:34 PM
MR. SPANOS read the sectional analysis for SB 134 into the
record.
Sec. 1. Adds a new chapter 22 in AS 43 for individual
income taxes.
43.22.010 Imposes an income tax on both resident and
nonresident individuals. The tax is six percent of a
resident's federal tax liability. The tax for a
nonresident is six percent of the portion of federal
tax liability that is from a source in the state.
43.22.020 Provides a credit to residents for taxes
paid to another state based on income earned in that
other state.
43.22.030 Provides for annual returns to the
Department of Revenue with taxes due on the date the
federal tax return is due. The taxpayer must provide a
copy of their IRS return. The department is authorized
to pay refunds of overpaid taxes.
43.22.040 Defines sources of income within Alaska that
are subject to the tax.
43.22.050 Provides for withholding from wages and
salaries by employers, with those withheld taxes
periodically remitted to the state.
Authorizes DOR to administer the tax.
definitions for specific terms used in this section.
42.22.060 Authorizes DOR to administer the tax.
42.22.190 Adds definitions for specific terms used in
this section.
Sec. 2. Repeals statutes related to a former tax
credit for political contributions that existed under
Alaska's prior individual income tax which was
repealed in 1980.
Sec. 3. Applicability section establishing that the
new tax applies to income received on or after the
effective date of the bill.
Sec. 4. Authorizes DOR to adopt regulations.
Sec. 5. Immediate effective date for Section 4, so
that regulations can be drafted immediately.
Sec. 6. Effective date of 1/1/17 for the rest of the
bill.
6:44:32 PM
MR. ALPER asked the committee to look at the individual income
tax as part of a large package of measures to try to resolve the
fiscal situation, not as a desire to impose a tax on Alaskans.
6:45:35 PM
CHAIR COSTELLO opened public testimony.
6:46:12 PM
ZEFFORAH DALTON, representing herself, Delta Junction, testified
in opposition to SB 134. She said she's 25 and just getting
started and finding a job. This is hard enough and having to pay
an individual income tax will make it that much more difficult.
6:48:17 PM
SHARON DALTON, representing herself, Delta Junction, testified
in opposition to SB 134. She said the United for Liberty Plan
has a wonderful plan for a balanced budget with cuts and no
taxes. There is no excuse for not implementing this plan, she
said.
PATRICK DALTON, representing himself, Delta Junction, testified
in opposition to SB 134. He quoted Milton Freeman and Martin
Anderson to support his assertion that taxes are detrimental to
an economy. He views the economy as a living, breathing being.
The economy is exhaling right now and we need to ride it through
by cutting and staying within expenses and we will rebound on
the other side of the business cycle, he said. That's what
happened during the 1980s. He also endorsed the United for
Liberty Plan to cut taxes and live within the budget.
6:51:56 PM
TONY TENGS, representing himself, Juneau, stated support for SB
134 as part of the solution to the budget crisis. He wishes it
were more a cornerstone of the solution rather than what appears
to be an add on. Income taxes were much higher in the past and
the 6 percent appears to be a talking point. His preference
would be for a tax closer to 10 percent. "Having a little extra
to make things work is going to be important," he said.
Adjusting the PFD is regressive and he doesn't like it because a
three-year-old will pay as much as a millionaire.
6:53:52 PM
CAROLINE STORM representing Alaska PTA (AKPTA), testified in
support of SB 134. She said AKPTA members are volunteers from
across the state and AKPTA supports the Governor's plan as a
starting point to balance the budget. She pointed out that 56
respondents in the latest Rasmussen poll favor the Governor's
Sustainable Alaska Plan. She also stated strong support for
income taxes. You get what you pay for, she said.
6:55:32 PM
ALLISON ARIANS, Region 4 Vice President, Alaska PTA, testified
in support of SB 134. She said she supports the Governor's
budget including an income tax. Along with thousands of PTA
members in Alaska she is willing to pay for the services she
receives for her children and grandchildren in the future. She
reported that one of AKPTA's legislative priorities is to have a
long term fiscal plan for Alaska that includes new sources of
general fund revenue. An income tax is an important component of
this new structure.
6:57:49 PM
JUAN SAN MIGUEL, President, Alaska PTA, testified in support of
SB 134. He discussed the potential of endangering the state's
credit rating by waiting to change the structure of the state's
budget. He pointed out that a credit downgrade will increase
costs and have a chilling effect on investments statewide. A
sustainable budget includes a state income tax and Alaska PTA
supports that.
6:58:44 PM
DON ETHERIDGE, Alaska, AFL-CIO, testified in support of SB 134.
He read a resolution from the Alaska, AFL-CIO into the record in
support of a state income tax for individuals. It is among the
least regressive taxes and will generate the greatest
contributions from the wealthiest citizens and nonresident
workers who earned $2.6 billion and paid no taxes. [A copy is in
the bill packet.]
7:01:39 PM
SENATOR STEVENS asked if he said that $2.6 billion was earned by
people who live outside Alaska.
MR. ETHERIDGE said yes.
SENATOR STEVENS calculated that would amount to about $30
million in taxes.
MR. ETHERIDGE agreed.
7:02:15 PM
JIMMY FOX, Vice President for Legislation, Alaska PTA,
Fairbanks, testified in support of SB 134. He reported that
Alaska state expenditures per capita have been almost the lowest
of any state in the nation and the individual tax burden is the
lowest. He said Gunnar Knapp had it right when he said Alaska
needs an all of the above strategy to address the budget
shortfall. That includes cuts to government spending, taxes, and
tapping into the permanent fund dividend. He urged the committee
to think about this and do the research instead of talking about
guns on campuses.
7:03:39 PM
LYNN HOHL, Region 6 Vice President, Alaska PTA Board of
Managers, testified in support of SB 134. She shared the results
of an Alaska PTA survey of 482 people from 62 towns across
Alaska. When they were asked to identify the top three concerns
for Alaska's children, access to quality education was the
number one concern followed by student poverty, homelessness,
and access to food. Relatively close third and fourth concerns
were the school safety issues of bullying and peer pressure and
healthy diet and exercise. The top challenge identified for
Alaska public schools was appropriate class size followed by
adequate funding for supplies and materials and teacher and
staff retention. Since staff is the largest expense in school
district budgets, and the number of certificated staff is
directly related to class sizes, reductions in school funding
impacts the top challenge.
She related that she paid a $10 school tax when she worked in a
Kodiak Island cannery in 1970 and it took 3 hours of work to pay
that tax. She also paid an income tax on her summer wages.
Paying those taxes did not discourage her from returning to the
cannery for 3 summers and moving to Anchorage in 1971. She
expressed support for an income tax to help pay for the many
beneficial services provided by the State of Alaska, especially
to help schools obtain reliable, adequate funding that is
protected from the volatility of oil prices.
MS. HOHL shared a recent experience sitting next to a gentleman
who worked in one of Alaska's active mines and was flying home
for R&R. She asked what he would think of having to pay income
taxes in Alaska to help support schools. He said of course he
didn't want to pay more taxes, but understood that with the
price of oil that nonresident workers may need to pay taxes when
working in Alaska.
7:07:55 PM
MICHELLE LATHAM, representing herself, Wasilla, testified in
opposition to SB 134. She questioned how it is fair to impose a
tax that will be paid by just half the population. The
administration said this tax is intended to hit those who have
"the most ability to pay," but she feels it will hit those
foolish enough to work. She listed the Temporary Assistance for
Needy Families (TANF) program that allows people to not work for
5 years straight and still receive cash assistance, disability
requirements that allow someone to be declared incompetent to
work yet they can be seen driving around the community, easy
income qualification parameters for Denali Kid Care, and a
Medicaid system where recipients have no skin in the game. She
referenced studies that show that when work requirements are
stricter, welfare decreases and employment rates increase, and
suggested that job programs need to be monitored more closely.
She said the solution is to control spending and pass the PFD
bill.
7:11:45 PM
JIM LATHAM, representing himself, Wasilla, testified in
opposition to SB 134. He referred to economic studies that show
that introducing an income tax in a state that doesn't have one
does a lot of damage to the state's economy. He pointed out that
the price of oil is likely to be around $30 for a number of
years, which will hurt Alaska's economy. He believes it is more
than fair to tax nonresident workers at a higher rate. He
encouraged more budget cutting measures and specifically
mentioned welfare and health and social services as well as
education. He would rather see no PFD than an income tax due to
the negative long-term consequences.
7:14:19 PM
ELISHA WAUGH, representing himself, Anchorage, Alaska, testified
in opposition to SB 134 because an income tax will take money
out of workers' paychecks. He has been struggling to save money
to buy a home and an income tax will make it much harder.
7:15:05 PM
RAY KREIG, representing himself, Anchorage, Alaska, testified in
opposition to SB 134. The Governor's income tax bill will take
$200 million a year out of family budgets while state government
has wasted $5.5 billion on gas pipeline dreams that experts
agree is unlikely to happen for decades. He urged both bodies to
push back and try to restore credibility to the state by cutting
billions from the budget and stopping waste before thinking of
an income tax or cutting permanent fund dividends.
7:17:43 PM
HANS RODVIK, representing himself, Anchorage, Alaska, testified
in opposition to SB 134. He described the individual income tax
as the most egregious of the 8 bills the Governor introduced to
close the budget gap. He listed three reasons why he is
adamantly opposed to resurrecting the income tax: it is unfair
and immoral, jobs will be lost, and economic growth in Alaska
will be stifled. He opined that the state is in this fiscal
crisis for two reasons. First, Alaskans have allowed their
government to spend irresponsibly for 40 years and have not
demanded measures to secure fiscal sustainability for future
generations. Second, the state has been unable to adequately
develop its abundant resources that should have helped diversify
the reliance on oil revenues.
MR. RODVIK encouraged the legislature to look at alternative
ways to reduce the deficit and listed funded but unfilled PCNs,
state worker healthcare contributions, Medicaid reform, and
corrections reform.
7:22:42 PM
RYAN MCKEE, representing himself, Anchorage, Alaska, said one
reason he is opposed to SB 134 is that state spending is out of
control and unstainable. He cited the number of unfilled but
still funded positons in state government as an example. Second,
implementing an income tax would hurt Alaskans without
addressing the issue of Alaska's growing debt. The estimated
$200 million in annual revenue would take money out of the hands
of Alaskans that is needed to cover the high cost of living. He
urged the committee to oppose SB 134.
7:23:50 PM
JEREMY PRICE, Alaska Director, Americans for Prosperity,
Anchorage, Alaska, testified in opposition to SB 134. He said an
appropriate saying here is that when you tax something more, you
get less and when you tax less you get more. He related his
concern with the economic impacts of taking money from the
private sector to fund government because the years of high oil
prices demonstrated that government will spend what it receives.
He cited a study called "Rich States Poor States" that found
that states that rely primarily on income taxes routinely
underperform states that do not levy taxes on personal income.
He urged the committee to reject a state income tax.
7:25:42 PM
DONALD WESTLUND representing himself, Ketchikan, Alaska
testified in opposition to SB 134. He said this bill will only
burden people who pay federal income tax, not those who rely on
handouts. He questioned whether the tax would be repealed once
the deficit reaches zero. He stated support for a permanent fund
bill that takes all the earnings and a consumption tax that
exempts food and fuel. He questioned how government can ask
citizens to pay an income tax when the legislature is still
looking at purchasing a $40 million building in Anchorage.
7:27:41 PM
TOMI MADAFFARI, representing himself, Ketchikan, Alaska
testified in opposition to SB 134. He suggested the public
should be able to vote on this matter. He asked if there was a
chance that state employees could receive lower paychecks and
benefits to help with the deficit. He described an income tax as
an extortion of working people and the progress of this state
and country.
7:30:21 PM
LANCE ROBERTS, representing himself, Ketchikan, Alaska stated
that SB 134 isn't a good idea because taking money out of the
private sector and putting it in the government sector results
in a decrease in both jobs and economic output. Further,
initiating an income tax to capture money from the 15 percent of
nonresident workers imposes a huge penalty on Alaska citizens.
The bill also implements an estate tax. That tax takes away the
ability to transfer money between generations, which is often
used to build new businesses. Handling the withholding tax will
also impose more cost on private enterprise as well as local and
state government entities, he said, because people have to be
hired to take care of that. He stressed that the worst provision
in the bill is allowing the department to incorporate provisions
of the Internal Revenue Code into the regulations; adding: "This
would allow this or future administrations to inflict the
terroristic activities of the IRS on Alaskan citizens." He
concluded that passing this bill "is the worst possible thing
you can do."
7:34:02 PM
WES HUMBYRD, representing himself, Homer, Alaska, testified in
firm support of SB 134. His feeling is that you either pay to
play or you don't play. The young people who are complaining
about no jobs need to find out what the real world is about
because there is plenty of infrastructure in Alaska for people
to make a living. He suggested reintroducing the school tax that
used to be withdrawn from a worker's first paycheck.
7:35:18 PM
KEN LANDFIELD, representing himself, Homer, Alaska, testified in
support of SB 134. This is the fairest and least onerous of the
proposed revenue sources, and it gives Alaskans direct input
into the state budget. Those who can least afford are least
impacted. It's also a good selling point that Alaska would have
the lowest tax in the nation. He also favors bringing back the
school tax.
7:36:44 PM
MICHAEL MCCARTHY, representing himself, Homer, Alaska, testified
in support of SB 134. He recently polled 200 Homer residents and
found that everyone was in favor of a state income tax and
vacating the new Anchorage legislative information office (LIO)
building as soon as possible. That same group unanimously
opposed a statewide sales tax. He opined that a state income tax
will increase citizen oversight of legislative efforts because
they will be more engaged.
7:38:12 PM
KELSI PULCZINSKI, representing herself, Anchorage, Alaska,
testified in opposition to SB 134. She works full time and is a
fulltime student. She must carefully budget both her time and
money to be successful and pay for school. The proposed
individual income tax would result in significant, negative
changes to her life. The cost of living in Anchorage,
particularly housing, is already high and additional taxes would
make it more difficult to maintain her independence. This is not
the way to solve the fiscal problems of the state. The problem
is not a revenue shortfall, it is a spending surplus as a result
of a bloated state government. Before considering increased or
new taxes, significantly cut spending, eliminate waste, and rein
in state government to constitutional and sustainable levels.
This means limiting the funds to which the state has access.
7:40:25 PM
JAMES SQUYRES, representing himself, Rural Deltana, Alaska,
testified in opposition to SB 134. He maintained that the size
of government should be reduced to the inflation and population
adjusted 2006 level instead of entertaining the idea of a state
income tax or reducing the PFD. He encouraged members to listen
to Brad Kiethley's common sense testimony before the Senate
State Affairs Committee [on 2/4/16]. He stated support for the
judicious use of the earnings reserve and the power of the
majority to lower the overall budget to $4.5 billion or more
this year. A state income tax would only bring in about $200
million and he believes there are easier ways to raise that
amount under the current structure. For example, the legislature
should revisit the issue of continuing to apply the original
inflation proofing formula to the permanent fund, because 80
percent of the investments are self-inflation-proofed. He urged
the committee to kill the bill.
7:43:27 PM
PAM GOODE, representing herself, Rural Deltana, testified in
opposition to SB 134. She maintained that the proposed taxes are
not necessary for an efficient government. She pointed out that
the bill does two major things. It collects data from the
federal government and it goes after earned income. She said the
federal government already has a hand in one of our pockets and
this bill allows state government to put its hand in the other
one. That is a violation. Noting that Mr. Spanos described the
tax as progressive, she pointed out that progressive taxation is
the second plank on the Communist Manifesto. She restated her
opposition to SB 134.
7:45:36 PM
ANGIE HUTCHINGS, representing herself, MatSu, Alaska, testified
in opposition to SB 134. She asked when the state is going to
actually balance the budget and how much the state is going to
take from the people before the people have no more to give.
It's time for the state to look at the budget and admit there
isn't enough money to support everything She favors cutting
school funding and cutting funding for a lot of programs. She
has yet to hear a legislator say "We don't have money for this,
it's time to cut it." Stop asking the people for more money
because they don't have it.
7:49:49 PM
STUART THOMPSON, representing himself, Meadow Lakes, Alaska,
testified in support of SB 134. He said past indiscretions and
the refusal to learn from our political heritage has led to the
current financial crisis and trapped us into enacting a state
income tax. Over 10 years ago he tried to proliferate state
income planning by the legislature, but he was brushed off. He
urged the committee to entertain the idea that ordinary citizens
might help solve the financial problems. He suggested
simultaneously enacting an income tax with a sunset clause and
calling bands of citizens together to offer suggestions about
how the state can ethically and reasonably increase revenue
through new income systems. Second, the legislature must rise
above the irrational notion that it can get things for free.
This means stop allocating state funds to match federal fund
bribery. Third, believe that Alaska and its citizens can be
self-supporting and self-sufficient and then apply the great
financial management maxim: income greater than outgo plus
reserves.
7:53:28 PM
PAT CHAMBERS representing herself, Fairbanks, Alaska, testified
in opposition to SB 134. She said an income tax punishes the
people who work and encourages the people who receive free
services. She suggested cutting regulations and services on
education and health and social services. Have a long-term
spending plan and save for rainy days, don't touch the PFD and
keep Alaska free, she said.
7:55:53 PM
SCOTT OGAN, representing himself, Palmer, Alaska, testified in
opposition to SB 134. He reported that he recently retired from
a state job. Before he left, he reduced his program budget by 50
percent by laying off himself and eliminating lower end
positions. He suggested others could do this. He expressed
disappointment that the focus is on passing taxes instead of
looking at programs the legislature has created since the state
started receiving oil wealth. He noted that Representative
Keller has a list of those programs. Until programs are
eliminated and we're back to a constitutional government we can
afford, it's ill-advised and premature to initiate an income
tax, he said.
7:58:06 PM
CHAIR COSTELLO held SB 134 in committee with public testimony
open.