Legislature(2015 - 2016)HOUSE FINANCE 519
04/14/2016 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB250 | |
| HB194 | |
| HB249 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 81 | TELECONFERENCED | |
| += | HB 250 | TELECONFERENCED | |
| += | HB 249 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 194 | TELECONFERENCED | |
HOUSE BILL NO. 250
"An Act relating to the taxation of income of
individuals; repealing tax credits applied against the
tax on individuals under the Alaska Net Income Tax
Act; and providing for an effective date."
2:09:41 PM
RANDALL HOFFBECK, COMMISSIONER, DEPARTMENT OF REVENUE,
relayed that the legislation was the largest component of
the New Revenue section of the governor's Sustainable
Alaska Plan, and would generate approximately $200,000,000.
He furthered that the tax was based on 6 percent of the
federal tax liability. He assured the committee that the
stat was not proposing to create its own set of tax tables,
or exemptions, or credits, but was relying on the federal
tax system. He hypothesized that a family of 4, making
$50,000 per year, would pay approximately $15 in state tax
under the proposal. He added that the first person that
would pay 1 percent of their gross earnings would be a
single filer, making $100,000 per year, and would pay just
over $1000 in tax. He believed that the tax was modest when
compared to incomes taxes in other states. He said that if
the bill were passed as proposed, the tax would be the
lowest in the nation.
2:11:22 PM
Representative Gara expressed reluctance to support the
legislation. He supported the effort in pushing various
revenue proposals, but wondered why the state would choose
the lowest income tax in the nation.
Commissioner Hoffbeck explained that the governor had
thought that small, incremental adjustments to existing
taxes, in addition to a small income tax, would spread the
burden across all Alaskans.
2:12:24 PM
Representative Gara wondered whether the administration had
planned on raising the income tax in the future in order to
close the budget gap.
Commissioner Hoffbeck responded in the negative.
Representative Gara spoke to the equitability of the tax.
He suggested that the wealthy lived off of capital gains,
which had a federal tax of 15 percent. He said that many
Alaskans paid 29 percent in income tax. He thought that the
bill would mean that those living foo of capital gains
would pay less than a 1 percent tax on their income.
Commissioner Hoffbeck replied that it was a possibility.
Representative Gara suggested that a very wealthy person,
living on capital gains, would pay a lower tax rate than a
person who "worked for a living".
Commissioner Hoffbeck thought that the assessment was
broad. He admitted that there were provisions within the
federal tax structure that provided for certain capital
gains benefits. He said that many states had special
capital gains taxes to address the issue. He said that the
tax was meant to be as simple and noncontroversial as
possible.
2:14:33 PM
Vice-Chair Saddler expressed concerns that the tax would
increase over time.
Commissioner Hoffbeck noted that the state used to have an
income tax, which was repealed and replaced by oil and gas
revenue. He believed that protections lay in the totality
of the governor's proposed fiscal package, as well as in
spending caps initiated by the legislature. He said that
provisions could be created that would make it difficult to
increase the tax.
2:16:06 PM
Vice-Chair Saddler opined that spending increases in
government could lead to an increase in the income tax.
Commissioner Hoffbeck replied that raising of the tax would
be at the discretion of the legislature.
2:17:05 PM
Representative Wilson asked whether there would be a
specific line on the federal tax return to accommodate the
payment of the income tax.
Commissioner Hoffbeck replied that the tax would be 6
percent of the "total tax liability" line on federal filing
documents. He added that there would be a few provisions
that would impact some, but the majority of people would
multiply their federal tax liability by 6 percent to
determine their personal income tax.
Representative Wilson asked whether the department had
performed an analysis on the personal income tax versus a
sales tax.
Commissioner Hoffbeck responded that the government
expenditure that supported a sales tax or an income tax
were not materially different. He noted that it cost the
same thing to administer a 6 percent sales tax versus 15
percent. He felt that by having a low tax rate, the cost of
the administration of the tax was higher, but the
difference in administrative cost between the income tax
and the sales tax was minimal.
Representative Wilson wondered why the administration chose
to implement a small income tax, coupled with motor fuel
and fish taxes, rather than one large income tax.
Commissioner Hoffbeck reiterated that the governor felt
that rather than have one tax bear the entire burden, the
burden should be spread across multiple layers of the
state's economy.
2:20:13 PM
Representative Wilson requested assurances that budget cuts
and taxes would be spread equally across the residents of
Alaska.
Commissioner Hoffbeck did not have an analysis that showed
how each group in the state would be affected. He did not
believe that a system could be created that would
absolutely spread the burden equally across the board.
Representative Wilson was glad that all taxes being
discussed at the same time. She feared that raising taxes
could result in people moving out of state.
2:22:00 PM
Representative Guttenberg mentioned the balancing of the
burden on Alaskans. He asked Commissioner Hoffbeck to
comment on some of the criticism from the public related to
the proposed taxes and Permanent Fund reductions.
Commissioner Hoffbeck replied that dividend check was
defined by a formula. He contended that the income tax
would be the lowest in the nation, and that dividends would
still be paid.
2:24:10 PM
Representative Guttenberg mentioned the legislature working
on a bill on tax credits. He wondered whether it was fair
to pay out tax credits to the oil industry, while taxing
Alaskans and capping the dividend.
Commissioner Hoffbeck responded that under the governor's
plan the credit liability would be rolled back by
$400,000,000. He mentioned the governor's efforts to make
sure the public was aware of how the oil tax credits were
being used. He spoke of the rhetoric concerning the public
concern about the credits, but asserted that the credits
were substantially less than in the past.
2:26:07 PM
Representative Guttenberg asked whether the amount of
credits currently in place justified the return to the
state.
Representative Wilson noted a point of order.
Co-Chair Thompson requested that conversation be limited to
the subjects contained in HB 250.
Representative Guttenberg thought that the credit issue was
germane to the discussion about balancing the fiscal burden
on the people of the state.
2:26:55 PM
Co-Chair Thompson referred to an analysis of the governor's
plan by Gunnar Knapp.
Commissioner Hoffbeck noted that Mr. Knapp's presentation
did not get into the specifics of the oil and gas tax.
Co-Chair Thompson said that the analysis covered the income
tax and the different components of the governor's plan.
Commissioner Hoffbeck agreed.
Vice-Chair Saddler understood that the administration had
contracted with economists to assess the impact of cutting
state jobs to the economy. He wondered whether specific
modeling on the income tax had been done.
Commissioner Hoffbeck stated that Mr. Knapp had included an
analysis on broad based taxes in his presentation.
2:28:41 PM
Vice-Chair Saddler asked whether the presentation had
included analysis on an income tax.
Commissioner Hoffbeck clarified that there were two
different version of an income tax that had been modeled in
the presentation.
Vice-Chair Saddler requested clarification as to the type
of taxes assessed in the presentation.
Commissioner Hoffbeck clarified that Mr. Knapp had looked
at a flat rate income tax, and a progressive income tax, as
well as a sales tax.
2:29:27 PM
JERRY BURNETT, DEPUTY COMMISSIONER, TREASURY DIVISION,
DEPARTMENT OF REVENUE, interjected that Mr. Knapp referred
to both an analysis of sales tax with few exclusions, and a
sales tax with multiple exclusions.
Co-Chair Thompson clarified that income tax was the topic.
Vice-Chair Saddler was confused about what had actually
been modeled. He remarked about the effects of a cut in the
dividend would hurt the poor, and an income tax would
affect the rich. He said that he expected to see further
analysis of the proposed income and sales taxes.
Commissioner Hoffbeck stated that all of the information
was in the report.
2:30:43 PM
Representative Gara surmised that the dividend could drop
to $400, under the governor's proposal, which for some
Alaskans was 20 percent of their yearly income. He
questioned the fairness of the proposed dividend cut,
compared to the proposed income tax.
Commissioner Hoffbeck stated that the wealthiest people of
the state would be paying in the highest tax bracket, or
3.87 percent, under the income tax. He did not agreed with
Representative Gara's statement that the wealthiest people
would only be paying a 1 percent tax. He continued that the
reduction in the size of the dividend will have a greater
impact on lower income families. He admitted that it was
not a perfect balance, but was crafted to be as fair as
possible across the board.
Co-Chair Thompson asked whether the lowest income earners
in the state would pay income taxes.
Commissioner Hoffbeck replied in the negative.
2:33:57 PM
Representative Gara argued that the cuts and taxes would
not be balanced until a fair oil tax credit bill was
crafted. He contended that the federal capital gains tax
would be less than 1 percent for the very rich.
Commissioner Hoffbeck confirmed that 6 percent of 15
percent was less than 1 percent.
Representative Kawasaki referred to a Rasmussen and
Institute for Tax and Economic Policy report that noted
that the Permanent Fund proposal was regressive, and the
income tax proposal was progressive, and asked whether the
low income tax proposed meant that the poor would be hit
hardest by the governor's plan.
Commissioner Hoffbeck replied that the report being
referred to had assumed a $2000 dividend. He reminded the
committee the formula used to determine the dividend had
been structured 30 years ago, and that any plans for using
the earnings reserve required a restructuring of the
formula. He said that the restructured formula would have
an impact on the size of the dividend, and smaller
dividends would impact low income families greater because
it was a larger portion of their overall income. He argued
that the same amount was being taken from each Alaskan's
dividend. He asserted that the income tax would be
progressive in an attempt to balance the burden. He
stressed that the proposals were necessary in order to
address the budget deficit. He corrected that income tax to
the wealthy would be 2.38, and not 3.87.
2:38:13 PM
Representative Kawasaki spoke to the progressive element of
the proposal. He indicated that people counted on the
dividend as income. He asked whether the governor had done
other modeling with higher income tax rates.
Commissioner Hoffbeck responded that originally the
governor looked at 15 percent of the federal tax rate. He
reminded the committee that the dividend for 2013 had been
less than $1000.
2:39:59 PM
Vice-Chair Saddler thought "fair" was a subjective term. He
wondered whether there were people in Alaska who earned
their living through investment income.
Commissioner Hoffbeck said that he could provide the
information at a later date.
2:41:26 PM
Representative Edgmon felt that the different taxes would
affect different groups in various ways. He wondered
whether an analysis had been done in order to understand
the impacts on various demographics statewide.
Commissioner Hoffbeck said that he could not provide a
detailed analysis on how the plan would affect specific
individuals in the state.
Representative Edgmon prophesized that an income tax would
not pass during the current year. He said that people in
his district preferred and income tax over a sales tax and
were concerned about the regressive nature of a dividend
cap.
Commissioner Hoffbeck asserted that the administration had
spent the past interim conducting conversations with the
public in order to educate the people on the issues. He
relayed that Alaskans understood the need for new revenue
in closing the $4 billion deficit gap. He contended that
issue of generating new revenue would come before the
legislature year-after-year until the problem was solved,
and warned that during that time, the state's savings would
be depleted.
2:46:50 PM
Representative Munoz understood that trust income
distributions to non-residents would be taxed under the
legislation.
Commissioner Hoffbeck replied that the issue had been
brought to the attention of the administration, and that an
amendment would be happily considered; the state would not
benefit from taxing the trusts. He said that there was a
strong argument for exemption.
Representative Munoz understood that business would
immediately go to other states if Alaska implemented a tax
on the income from the trusts.
2:48:08 PM
Representative Munoz whether Alaska would be the only state
that structured its income tax as a percentage of the
federal tax liability, and not as a percentage of actual
income.
Commissioner Hoffbeck confirmed that Alaska would be using
the federal tax structure.
2:49:18 PM
Representative Munoz asked whether structuring the tax
under the federal tax structure could cause a
constitutional conflict.
Commissioner Hoffbeck indicated that the administration was
aware of the potential conflict.
2:49:54 PM
Representative Gara queried the rate of the state's
previous income tax.
Commissioner Hoffbeck deferred the question to Mr. Spanos.
2:50:28 PM
BRANDON S. SPANOS, DEPUTY DIRECTOR, TAX DIVISION,
DEPARTMENT OF REVENUE, informed the committee that in 1975,
Alaska decoupled from the federal income tax liability and
had an autonomous tax bracket, which ranged from 3 to 14.5
percent of federal taxable income.
Representative Gara commented that the rate was
substantially higher in the 70's. He asked why the
administration would choose a plan that benefitted the
state's most wealthy residents, while penalizing low income
earners.
Commissioner Hoffbeck reiterated that the governor thought
his plan was a balanced plan.
2:52:48 PM
Representative Guttenberg thought that the commissioner was
internally tweaking the bill in respect to trusts and
federal obligations. He requested an explanation of changes
to provide a current analysis of the legislation.
2:53:46 PM
Vice-Chair Saddler asked whether the state income tax could
be deducted from the federal income tax, or vice versa.
Commissioner Hoffbeck replied that any tax that was
deductible against the federal income tax would by default
become deductible against the state tax. Additionally, the
state income tax would be a deduction against the federal
income tax.
Vice-Chair Saddler clarified that the filer had to itemize
in order to get the deductions.
Commissioner Hoffbeck agreed.
Vice-Chair Saddler queried the income limit for
itemization.
Commissioner Hoffbeck did not have an answer.
Mr. Spanos spoke to the standard deduction for necessary
itemization. He said for individuals the standard deduction
was $6300, and for a married couple filing jointly it was
$12,600.
HB 250 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 249 CS WORKDRAFT vG.pdf |
HFIN 4/14/2016 1:30:00 PM |
HB 249 |
| HB 249 CFEC Letter.pdf |
HFIN 4/14/2016 1:30:00 PM |
HB 249 |
| HB 249 CFEC vessels affected by removal of fee cap.pdf |
HFIN 4/14/2016 1:30:00 PM |
HB 249 |
| HB 249 CFEC 16.02.19 Gho memo on fee ceiling.pdf |
HFIN 4/14/2016 1:30:00 PM |
HB 249 |
| HB 249 CFEC Letter.pdf |
HFIN 4/14/2016 1:30:00 PM |
HB 249 |
| HB 249 Sectional FIN.pdf |
HFIN 4/14/2016 1:30:00 PM |
HB 249 |