Legislature(2001 - 2002)

02/22/2002 01:10 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HJR 36 - CONSTITUTIONAL AMENDMENT : TAX CAPS                                                                                  
Number 0736                                                                                                                     
CHAIR ROKEBERG  announced that the  last order of  business would                                                               
be  SPONSOR  SUBSTITUTE  FOR  HOUSE   JOINT  RESOLUTION  NO.  36,                                                               
Proposing  an  amendment to  the  Constitution  of the  State  of                                                               
Alaska relating to  limiting the rate of  state individual income                                                               
taxes and sales taxes.                                                                                                          
Number 0641                                                                                                                     
REPRESENTATIVE  ERIC CROFT,  Alaska  State Legislature,  sponsor,                                                               
opined that [SSHJR 36] is  a bipartisan bill that everybody could                                                               
and should support regardless of  how they feel about any pending                                                               
tax  proposals.   He said  that [SSHJR  36] should  give everyone                                                               
confidence that neither a state income  tax nor a state sales tax                                                               
will "grow  above a certain  rate."   He explained that  the main                                                               
difference  between   the  original   version  and   the  sponsor                                                               
substitute of HJR  36 is that SSHJR 36 specifies  that it pertain                                                               
to an individual  income tax rather than a  corporate income tax.                                                               
In addition, SSHJR  36 eliminates language stating  how an income                                                               
tax would be  levied and focuses instead on the  fact that a tax,                                                               
regardless of  how it is  calculated, shall not exceed  a certain                                                               
REPRESENTATIVE CROFT noted that in  members' packets is a handout                                                               
highlighting that a tax cap is  not a spending cap, although they                                                               
are  compatible and  may aim  for similar  results -  restraining                                                               
state spending.   He offered  that a tax  cap and a  spending cap                                                               
could  be done  together because  there is  nothing contradictory                                                               
about them.   He mentioned  that Anchorage  chose to adopt  a tax                                                               
cap  on its  "municipal tax  levy" while  still allowing  for new                                                               
construction  and new  property improvements.   This  combination                                                               
provides  an incentive  to  encourage  new economic  development,                                                               
because new construction  - new property additions -  adds to the                                                               
tax  base and  allows the  municipality to  provide police,  fire                                                               
[protection],   roads,  schools,   and  infrastructure   for  the                                                               
population growth resulting from economic development.                                                                          
REPRESENTATIVE CROFT,  again referring to members'  packets, said                                                               
that it also includes charts  detailing "where the 5 percent cap"                                                               
proposed by  SSHJR 36  would fall  with regard  to the  sales tax                                                               
rates  and  the  income  tax  rates for  various  states,  and  a                                                               
legislative research  report by  the Legal and  Research Division                                                               
of the Legislative  Affairs Agency.  He noted that  the last page                                                               
of this  report states that the  median U.S. sales tax  rate is 5                                                               
percent, which is "our information as  well about the high end of                                                               
the  income tax  bracket; that  is, if  you impose  this as  a an                                                               
income tax  measure, you would  be at  about the median  level in                                                               
the  U.S.  currently for  your  top  income  tax bracket."    Put                                                               
another way, he said, SSHJR 36  would ensure that neither a sales                                                               
tax nor an income tax would rise above the current U.S. average.                                                                
Number 0230                                                                                                                     
REPRESENTATIVE  CROFT  relayed  that  he  developed  the  concept                                                               
encompassed  in HJR  36 after  talking to  a neighbor/constituent                                                               
whose main  concern did not  pertain the  initial rate of  a tax,                                                               
but rather on the fact that "they  never seem to stop there:  ...                                                               
they grow and grow, and he did  not want to see anything that had                                                               
that  unlimited  nature to  it."    He  mentioned that  the  main                                                               
support, both  in-state and nationally,  for tax caps  of various                                                               
types  typically comes  from conservative  groups, many  of which                                                               
have resources  on the Internet.   In conclusion he said  that he                                                               
hopes that people  will support the idea of a  tax cap regardless                                                               
of how they feel about  the various tax proposals currently going                                                               
through the legislative process.                                                                                                
CHAIR ROKEBERG  asked:  "Isn't it  true that you are  an advocate                                                               
of having  a, what  I call,  'bundled fiscal  plan?'"   "How does                                                               
this, because it has to be acted  on by the voters and acted upon                                                               
separately, fit into a bundle?"                                                                                                 
REPRESENTATIVE CROFT said:                                                                                                      
     I  think, personally,  that we  should  enact a  fiscal                                                                    
     plan  this session,  and I'd  prefer to  do it  in some                                                                    
     whole way that comes close  to filling, for now and the                                                                    
     foreseeable future, the close to  a $1 billion gap that                                                                    
     we  have.   I think  it's only  responsible that  we do                                                                    
     that  though I  know as  well as  anyone the  political                                                                    
     pain that will come with it.   I think it's part of our                                                                    
     responsibility, and  for me  it's worth  that political                                                                    
     pain - or even not  getting elected the next election -                                                                    
     to secure our future.                                                                                                      
CHAIR   ROKEBERG  clarified   that  his   question  was   whether                                                               
Representative Croft  felt that  SSHJR 36 should  be part  of the                                                               
TAPE 02-22, SIDE A                                                                                                              
Number 0001                                                                                                                     
REPRESENTATIVE CROFT said  he thinks that for those  opposed to a                                                               
fiscal plan,  SSHJR 36 can be  viewed on its own  merits; the tax                                                               
cap or the spending cap,  individually or together, can be viewed                                                               
as measures that allow people  to feel more comfortable about any                                                               
future tax proposals.                                                                                                           
CHAIR ROKEBERG  asked:  "Doesn't this  have to come to  the floor                                                               
as a separate matter and not be part of a bundle?"                                                                              
REPRESENTATIVE CROFT  said that  according to  his understanding,                                                               
SSHJR 36 has  to be considered separately, and  no particular tax                                                               
proposal  could be  tied to  it, because  of a  provision in  the                                                               
Alaska State Constitution that prohibits  "putting taxes up for a                                                               
vote."  "And if  you say, 'These taxes only come  in if a certain                                                               
constitutional amendment  comes in,' you're in  effect having the                                                               
people vote on a  tax," he noted.  In response  to a question, he                                                               
said  that the  legislature is  constitutionally prohibited  from                                                               
delegating its "taxing power."                                                                                                  
CHAIR ROKEBERG  asked if  there were  any [Alaska]  Supreme Court                                                               
cases  that specify  whether a  tax could  be instituted  via the                                                               
initiative process.                                                                                                             
REPRESENTATIVE CROFT said  he did not know, only  that he thought                                                               
there  was  a  constitutional  provision  that  states  that  the                                                               
legislature cannot delegate its taxing power.                                                                                   
CHAIR ROKEBERG  said that his  point is  that SSHJR 36  "can't be                                                               
REPRESENTATIVE CROFT concurred.                                                                                                 
REPRESENTATIVE BERKOWITZ said that he disagrees.  He elaborated:                                                                
     Of course  you can  bundle it; the  same way  we bundle                                                                    
     things all  the time.   But I think [that]  properly it                                                                    
     should be a separate subject  than what we're doing for                                                                    
     putting  together   a  fiscal   plan.    ...   It's  my                                                                    
     understanding,  actually, that  you can  bundle passage                                                                    
     of  the  resolution   through  both  chambers,  without                                                                    
     requiring passage  of the  electorate.   Nonetheless, I                                                                    
     think that's a bad idea.                                                                                                   
REPRESENTATIVE BERKOWITZ,  in response  to a question,  said that                                                               
when a resolution  to amend the constitution  passes through both                                                               
bodies, it  then goes to the  public.  He explained  that this is                                                               
different from  passing the resolution and  having the resolution                                                               
be adopted and  become an amendment; instead, it has  to pass out                                                               
of both houses - both bodies -  before the people get a chance to                                                               
vote on it.                                                                                                                     
Number 0292                                                                                                                     
REPRESENTATIVE OGAN recalled that  a past proposed constitutional                                                               
amendment regarding  subsistence was  tied to whether  the Alaska                                                               
National Interest Lands Conservation  Act (ANILCA) was altered in                                                               
specific  ways.    "So,  I   suppose  we  could  bundle  it,"  he                                                               
acknowledged,  noting, however,  that Article  IX, Section  1, of                                                               
the Alaska  State Constitution  states:   "The power  of taxation                                                               
shall never  be surrendered.   This power shall not  be suspended                                                               
or contracted away except as provided in this article."                                                                         
REPRESENTATIVE CROFT surmised  that this constitutional provision                                                               
would not prohibit an amendment instituting  a tax cap such as is                                                               
proposed by  SSHJR 36, which  doesn't impose  a new tax  but only                                                               
specifies when  it stops.   Additionally,  he offered  his belief                                                               
that  a  new tax  could  not  be  instituted via  the  initiative                                                               
REPRESENTATIVE  MEYER opined  that although  Representative Croft                                                               
has compared SSHJR 36 to Anchorage's  tax cap, it is not the same                                                               
because property  taxes are basically  the only source  of income                                                               
for the Anchorage municipality; the  tax cap in Anchorage ensures                                                               
that property  taxes will not  "get out  of hand," and  thus also                                                               
serves  to  limit  spending.    On the  other  hand,  since  [oil                                                               
revenues] provide  80 percent of  the state's revenue, even  if a                                                               
tax cap is  instituted, revenues from other sources  would not be                                                               
restricted.   He relayed  that U.S.  Senator Frank  Murkowski has                                                               
stated  that either  an  income tax  or a  sales  tax would  hurt                                                               
Alaska's economy,  but has acknowledged  that perhaps  a seasonal                                                               
sales  tax  might  be acceptable.    Representative  Meyer  asked                                                               
Representative  Croft how  a seasonal  sales tax  would fit  into                                                               
SSHJR 36.                                                                                                                       
REPRESENTATIVE CROFT first  clarified that he did  not think that                                                               
the Anchorage  tax cap and the  tax cap proposed by  SSHJR 36 are                                                               
identical.  And although a  lot of Anchorage's revenue comes from                                                               
property tax,  he noted, according  to his information,  about 40                                                               
percent  of  Anchorage's  revenue  is "nontax"  revenue:    fees,                                                               
fines, grants,  and forfeitures.  Therefore,  Anchorage's tax cap                                                               
is  not a  spending cap;  it  is merely  a  tax cap  on the  most                                                               
significant tax that  Anchorage imposes.  He  also clarified that                                                               
he is not portraying SSHJR 36 as  a spending cap; "I said they do                                                               
similar things,  they do not do  identical things."  [A  tax cap]                                                               
has a generally constraining effect  on spending but does not cap                                                               
it; there could  still be spending increases.  A  tax cap says to                                                               
taxpayers that  only a certain  amount of revenue will  be sought                                                               
from their pockets.  And although  a spending cap has a generally                                                               
depressing  effect  on tax  increases,  there  could still  be  a                                                               
spending cap in conjunction with very high tax rates.                                                                           
Number 0737                                                                                                                     
REPRESENTATIVE CROFT again  stated that although a tax  cap and a                                                               
spending  cap  can  complement  each  other  and  have  generally                                                               
similar effects,  they are not  identical.  He indicated  that he                                                               
would  like  to  see  SSHJR  36  advance  to  the  House  Finance                                                               
Committee so  that it  can be compared  with a  proposed spending                                                               
cap to  see which makes  more sense:   to see whether  people are                                                               
more  worried, in  general,  about the  absolute  level of  state                                                               
spending or  about how much  a tax  is and how  far it goes.   He                                                               
reiterated his  belief that everybody  should be able  to support                                                               
SSHJR 36 regardless of how  they feel about the implementation of                                                               
statewide taxes.  In response  to Representative Meyer's question                                                               
regarding a  seasonal sales tax,  Representative Croft  said that                                                               
SSHJR 36 would apply to that  as well; "you're rate could not get                                                               
any higher" than what is stipulated in SSHJR 36.                                                                                
CHAIR  ROKEBERG asked  whether the  cap  on the  sales tax  would                                                               
allow payment  to vendors  for collection  fees, "which  would be                                                               
above the cap - or outside the cap"  and which is common in a lot                                                               
of states.                                                                                                                      
REPRESENTATIVE CROFT, after acknowledging  that "it" is common in                                                               
a lot  of states, posited  that the rate  of sales tax  levied by                                                               
the state  is the amount that  the state gets and  thus "would be                                                               
after those  deductions to the  vendor."  He added,  though, that                                                               
the  committee may  wish to  clarify  that issue  further via  an                                                               
amendment or committee substitute.                                                                                              
CHAIR  ROKEBERG indicated  that he  wanted  to be  sure that  the                                                               
language accommodated "those kind of surcharges."                                                                               
REPRESENTATIVE  CROFT agreed  that is  would be  best to  clarify                                                               
that issue.                                                                                                                     
CHAIR ROKEBERG,  referring to both SSHJR  36 and a 2001  1040 tax                                                               
form, asked  why "federal adjusted  gross income" is used  in the                                                               
calculation,  instead of  "taxable income."   He  noted that  the                                                               
difference   between   those   two  figures   includes   itemized                                                               
deductions from  Schedule A  [or] a  standard deduction,  and any                                                               
exemptions allowed  under the Internal Revenue  Service (IRS) tax                                                               
code.   This  means that  exemptions for  large families  or home                                                               
ownership would not be included  in the calculation of a person's                                                               
state  income tax.   He  opined that  this might  result in  some                                                               
people  paying between  6 percent  and 30  percent, depending  on                                                               
deductions and exemptions.                                                                                                      
Number 1024                                                                                                                     
REPRESENTATIVE CROFT  explained that  the vast majority  of other                                                               
states choose  from among  three different  lines on  the federal                                                               
form upon which to base their  state income tax.  Some states use                                                               
line 33,  federally adjusted gross  income; some states  use line                                                               
39,  taxable income  after deductions  and  exemptions; and  some                                                               
states  use line  58,  the total  tax owed.    He indicated  that                                                               
although each option has "various  good arguments," his intention                                                               
was to  leave open for debate  the issue of which  option to use,                                                               
and  to this  end,  he simply  chose  the  use of  line  33 as  a                                                               
starting point for the discussion.                                                                                              
CHAIR  ROKEBERG  mentioned  that  that  option  also  allows  for                                                               
changes to the IRS code.                                                                                                        
REPRESENTATIVE CROFT went on to  point out that language in SSHJR
36, starting on line 8, provides  for an option other than use of                                                               
line 33  on the federal form:   "If the individual  income tax is                                                               
levied on  any basis  other than  federal adjusted  gross income,                                                               
the total amount  of tax collected statewide may  not exceed what                                                               
would have been  collected if the tax rate had  been five percent                                                               
of federal  adjusted gross  income."  He  indicated that  had the                                                               
state  collected an  individual income  tax this  year, it  would                                                               
have raised  about $600 million based  on line 33 of  the federal                                                               
form  or about  $450 million  based on  line 39.   He  added that                                                               
SSHJR 36, while still providing a  tax cap, allows for changes to                                                               
the IRS form and for the use  of different lines on that form for                                                               
calculation purposes.                                                                                                           
REPRESENTATIVE  BERKOWITZ asked  Representative Croft  whether he                                                               
had "numbers that attach to 1  percent of adjusted gross, or what                                                               
each  percentage of  adjusted gross  [is]  versus taxable  income                                                               
versus total tax?"                                                                                                              
REPRESENTATIVE  CROFT said  that the  deputy commissioner  of the                                                               
Department  of  Revenue, Larry  Persily,  gave  him numbers  that                                                               
indicate that  in order to  raise about $400 million,  the income                                                               
tax rate would have to be 3.13  percent if it were based on gross                                                               
income,  4.34 percent  if it  were based  on taxable  income, and                                                               
just under 22 percent if it  were based on federal tax liability.                                                               
Adding that  he would  have to research  whether "on  higher ends                                                               
these  ratios still  work out,"  he explained  that these  ratios                                                               
indicate roughly that  1 percent of adjusted  gross income equals                                                               
either  1.4  percent  of  taxable  income or  7  percent  of  tax                                                               
liability.  In  response to a question he said  that 5 percent of                                                               
adjusted gross income would equal [7] percent of taxable income.                                                                
Number 1247                                                                                                                     
CHAIR ROKEBERG  asked Representative  Croft why  he picked  a tax                                                               
cap of 5 percent instead of 4 percent, for example.                                                                             
REPRESENTATIVE CROFT indicated  that the idea of  using 5 percent                                                               
originally  occurred to  him because  of  discussions on  another                                                               
constitutional  amendment pertaining  to using  5 percent  of the                                                               
market  value of  the  permanent  fund.   He  said  that he  then                                                               
learned that the national median sales  tax rate is 5 percent, as                                                               
is "the  median top rate  of income tax  in the states  that have                                                               
income tax."   He said that from a couple  of different angles, 5                                                               
percent works  as a  number above  which he  didn't want  the tax                                                               
rate to rise.                                                                                                                   
CHAIR   ROKEBERG   mentioned   that   a   concept   proposed   by                                                               
Representative  Carl  Moses  for   several  years  regarding  tax                                                               
credits for property  taxes paid within the  state shows enormous                                                               
value.   He  asked Representative  Croft whether  SSHJR 36  would                                                               
allow such a tax credit.                                                                                                        
REPRESENTATIVE CROFT  said that SSHJR  36 would allow for  such a                                                               
tax credit,  adding that  the only limitation  would be  that "it                                                               
could not raise more money than  one that was 5 percent and based                                                               
solely on federal  adjusted gross income."  He  mentioned that as                                                               
long as  the calculation  used does  not exceed  the tax  cap, it                                                               
would be acceptable.                                                                                                            
REPRESENTATIVE BERKOWITZ  noted that according to  a conversation                                                               
he had with [economist] Scott Goldsmith:                                                                                        
     Raising $1 in sales tax,  93 cents comes from Alaskans;                                                                    
     raising $1  from the permanent fund  dividend, 86 cents                                                                    
     comes from Alaskans - and  you get federal tax linkage;                                                                    
     and  raising income  tax dollars,  75 cents  comes from                                                                    
     Alaskans,  because it's  an  efficient  way of  getting                                                                    
     nonresident workers,  plus we're  allowed to  deduct it                                                                    
     from our federal taxes.                                                                                                    
REPRESENTATIVE  COGHILL  remarked  that   he'd  heard  this  same                                                               
information just the other day.                                                                                                 
REPRESENTATIVE  BERKOWITZ said  he would  provide those  specific                                                               
numbers to members for future debates.                                                                                          
CHAIR ROKEBERG announced that SSHJR 36 would be held over.                                                                      

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