02/20/2001 08:02 AM House STA

SJR 12 - ELIMINATE MARRIAGE TAX PENALTY                                                                                       
                                                                                                                                
Number 0828                                                                                                                     
                                                                                                                                
CHAIR COGHILL announced that the  next order of business would be                                                               
SENATE  JOINT  RESOLUTION NO.  12(title  am),  Urging the  United                                                               
States Congress to  amend the tax code to  eliminate the marriage                                                               
penalty.                                                                                                                        
                                                                                                                                
Number 0842                                                                                                                     
                                                                                                                                
SENATOR  LOREN LEMAN,  Alaska State  Legislature, spoke  as prime                                                               
sponsor  of SJR  12.   He explained  that under  the federal  tax                                                               
code,  married couples  pay more  than  they would  if they  were                                                               
single people living together.   He called it "a basic unfairness                                                               
that  Congress  has   been  trying  to  address."     Last  year,                                                               
legislation  passed  by Congress  was  vetoed  by the  president.                                                               
Senator Leman said it appears  that Congress intends to deal with                                                               
the marriage  penalty again,  and that the  issue remains  one of                                                               
United States Senator Frank Murkowski's priorities.                                                                             
                                                                                                                                
SENATOR  LEMAN estimated  that 67,000  couples, or  about 134,000                                                               
people in Alaska, are affected by  the marriage penalty.  The tax                                                               
code is  complex, and there  are about  60 provisions in  it that                                                               
either contribute  toward or  affect the penalty.   The  two main                                                               
reasons for the  marriage penalty are the  standard deduction and                                                               
the graduated rate structure.                                                                                                   
                                                                                                                                
SENATOR LEMAN directed attention to  a table in committee packets                                                               
that  showed how  the penalty  affects people  in various  income                                                               
categories.   He explained  that the basic  problem is  that when                                                               
two people are  earning income, the standard  deduction for joint                                                               
filers  is less  than  twice  that for  a  single filer,  thereby                                                               
creating  the  penalty.   In  addition  to the  smaller  standard                                                               
deduction, income tax rates are  higher for married joint filers.                                                               
He noted  that this not only  affects those in the  higher income                                                               
levels, but people  at all income levels, including  those in the                                                               
lower levels who receive earned income tax credit.                                                                              
                                                                                                                                
SENATOR LEMAN  voiced his  opinion that the  tax code  should not                                                               
penalize  marriage.    "In  fact,"  he  said,  "we  ought  to  do                                                               
everything we can  to encourage it.  I  believe marriage provides                                                               
a  societal good  and the  tax code  should at  least be  neutral                                                               
toward it."                                                                                                                     
                                                                                                                                
Number 1144                                                                                                                     
                                                                                                                                
ROBERT  F.   SRAMEK,  Certified  Public   Accountant,  Anchorage,                                                               
testified by teleconference.   He explained a third  way in which                                                               
the  marriage  penalty  affects taxes,  saying  many  income  tax                                                               
deductions  are reduced  and phased  out as  a person's  adjusted                                                               
gross  income  increases.   Among  them  are the  deductions  for                                                               
interest  paid   on  student  loans   and  for   contributing  to                                                               
Individual Retirement  Accounts.   Married people  filing jointly                                                               
have  a  proportionately higher  adjusted  gross  income, so  the                                                               
amount that they lose accelerates.                                                                                              
                                                                                                                                
MR. SRAMEK  said another area  in which Alaskans are  impacted is                                                               
in   the  taxation   of  dependent   children's  Permanent   Fund                                                               
dividends.   Any  dependent who  has  an income  above $1,400  is                                                               
taxable.  If the child is  under 14 years old, anything in excess                                                               
of that  $1,400 is taxed  at the parents' incremental  rate. "And                                                               
so,"  he said,  "we  have one-year-old  kids  being taxed  ...[at                                                               
rates]  all the  way up  to 39.6  percent on  a portion  of their                                                               
Permanent Fund dividend, which obviously is not real fair."                                                                     
                                                                                                                                
MR. SRAMEK then described an  area of concern to senior citizens:                                                               
the more  income a person  has, the greater the  probability that                                                               
the person's Social  Security monies will become taxable.   For a                                                               
single  individual,  the  amount   of  income  [at  which  Social                                                               
Security  income  becomes  taxable]  is $25,000;  for  a  married                                                               
[couple], the  amount is $32,000.   When  a person has  income in                                                               
excess of that amount, then  that person's Social Security monies                                                               
become taxed  as well [as  other income].   He mentioned  a trend                                                               
toward  senior  citizens choosing  to  live  together instead  of                                                               
marrying  simply  because of  the  negative  tax consequences  of                                                               
marriage.                                                                                                                       
                                                                                                                                
MR. SRAMEK said he has heard there  are more than 60 areas in the                                                               
federal tax code  in which there are these  kinds of disparities.                                                               
He said  he'd be surprised  if there  are only 60,  because there                                                               
are  so many  provisions  that are  either  impacted by  adjusted                                                               
gross income  or in  which there's a  definite difference  in the                                                               
way a married  person is taxed as compared with  a single person.                                                               
So it's not just a young person's  issue and it's not just an old                                                               
person's issue, it's everyone's issue, he concluded.                                                                            
                                                                                                                                
CHAIR COGHILL  quoted the  part of SJR  12 that  read, "[Further]                                                               
Resolved that  this legislation  equalize the  standard deduction                                                               
...."  He asked if equalization would bring the proper parity.                                                                  
                                                                                                                                
MR.  SRAMEK  replied,  "It  would  be  Step  One,"  adding,  "The                                                               
internal revenue code  is now larger than the Bible.   To correct                                                               
all of the inequity would be  a major undertaking.  This [SJR 12]                                                               
would be a first step, but it would not resolve all of it.                                                                      
                                                                                                                                
REPRESENTATIVE  JAMES thanked  Senator Leman  for sponsoring  SJR
.                                                                                                                             
                                                                                                                                
Number 1562                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HAYES moved  to report  SJR 12(title  am) out  of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal notes.   There  being no objection,  SJR 12(title  am) was                                                               
reported out of the House State Affairs Standing Committee.