Legislature(2001 - 2002)

02/14/2002 08:06 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 10-INCOME TAX ON INDIVIDUALS & FIDUCIARIES                                                                                 
                                                                                                                                
[Contains discussion of SSHB 199 and HB 413]                                                                                    
                                                                                                                                
Number 0042                                                                                                                     
                                                                                                                                
CHAIR COGHILL  announced the first  order of business,  HOUSE BILL                                                              
NO. 10, "An Act relating to the taxation of income."                                                                            
                                                                                                                                
Number 0206                                                                                                                     
                                                                                                                                
TIM BENINTENDI,  Staff to Representative Carl Moses,  Alaska State                                                              
Legislature, presented  HB 10 on  behalf of Representative  Moses,                                                              
sponsor.  Of  the three major proposals  [HB 413, SSHB  199 and HB
10],  he  said [HB  10]  would  probably  be "income  tax  light,"                                                              
generating  between $90-$100  million.   Its  main  distinguishing                                                              
feature is  providing a  credit for  both personal property  taxes                                                              
and real  estate taxes  paid in  the state;  it is a  considerable                                                              
deduction,  which  is  one  reason  the income  from  [HB  10]  is                                                              
considerably  less than  from the  other [bills].   He noted  that                                                              
the bill  is fairly  conventional  in its setup  and is  basically                                                              
modeled  on  "the income  tax  that  used  to  be active  in  this                                                              
state."                                                                                                                         
                                                                                                                                
Number 0314                                                                                                                     
                                                                                                                                
CHAIR COGHILL asked  Mr. Benintendi to describe the  basis for the                                                              
tax rate and the fundamentals of the tax liability.                                                                             
                                                                                                                                
MR. BENINTENDI told  committee members the bill  graduates the tax                                                              
- or  "brings it in  somewhat modestly" -  and raises it  over the                                                              
course of  three years.   He said  if an  income tax were  chosen,                                                              
Representative  Moses wanted to  "get it in  and across  as easily                                                              
as possible."   For  example, he  noted that  for the  first year,                                                              
[the  proposed  tax]  would  tax  people at  5  percent  of  their                                                              
federal tax  liability if that  liability were less  than $20,000,                                                              
and at  10 percent if  it were more than  $20,000.  In  the second                                                              
year,  it would  go to 10  percent for  less than  $20,000 and  15                                                              
percent for  over $20,000.   He  concluded that  in the  third and                                                              
final year, it would  be 15 percent for less than  $20,000, and 20                                                              
percent for over $20,000.                                                                                                       
                                                                                                                                
Number 0440                                                                                                                     
                                                                                                                                
CHAIR COGHILL asked  Mr. Benintendi what is meant  by "the federal                                                              
income  tax  liability of  under  $20,000."    He asked  how  he'd                                                              
arrived at that number.                                                                                                         
                                                                                                                                
MR.  BENINTENDI  explained  that  after the  taxpayer  prepares  a                                                              
federal tax  filing, the liability  would be determined  on [Form]                                                              
1040.  If  that amount is less  than $20,000, then the  [5 percent                                                              
in the  first year, for  example] would  apply; if it's  more than                                                              
[$20,000], then  the [10 percent  in the first year,  for example]                                                              
would apply.                                                                                                                    
                                                                                                                                
CHAIR COGHILL  said he thought the tax  rate was a key  issue.  He                                                              
indicated  the word "fiduciary"  on page  6 [of  HB 10]  and asked                                                              
Mr. Benintendi how he'd arrived at the definition.                                                                              
                                                                                                                                
MR. BENINTENDI  said beyond  having "picked that  up from  the old                                                              
... income tax structure," he didn't know why that was there.                                                                   
                                                                                                                                
CHAIR COGHILL remarked  that a trust doctrine has  been created in                                                              
Alaska  that has  given people  an incentive  to "warehouse  money                                                              
here."  He said,  "I just need to know to what  degree we're going                                                              
to affect  that whole scheme that  we have been building  over the                                                              
last several years."                                                                                                            
                                                                                                                                
Number 0572                                                                                                                     
                                                                                                                                
REPRESENTATIVE   CRAWFORD  asked,  if   a  person's   federal  tax                                                              
liability is  $22,000, whether that  person would be taxed  at the                                                              
lower  rate for  the  first $20,000  and at  the  higher rate  for                                                              
everything over that amount.                                                                                                    
                                                                                                                                
MR. BENINTENDI answered  that if a person's federal  tax liability                                                              
is above  $20,000, then the  entire amount  would be taxed  in the                                                              
third year, for example, at 20 percent.                                                                                         
                                                                                                                                
Number 0623                                                                                                                     
                                                                                                                                
REPRESENTATIVE  STEVENS, regarding  the credit  for property  tax,                                                              
said this is in  regard to personal - not corporate  - income tax.                                                              
He asked,  "Is it  just your  primary  home, or is  it credit  for                                                              
people who  have vacation  homes?"  He  also asked Mr.  Benintendi                                                              
to clarify  whether the  15 or 20  percent would  be taken  on the                                                              
amount owed the federal government on line 70 of tax Form 1040.                                                                 
                                                                                                                                
MR. BENINTENDI  answered yes  to the  latter question.   Regarding                                                              
the former question,  he said the intent of  Representative Moses'                                                              
bill, as  presently written,  is to  give the  credit for  any and                                                              
all personal  property taxes paid or  real estate taxes  paid.  He                                                              
said,  "It's pretty  wide-open,  and that's  one  of the  features                                                              
that draws  the income  down that would  eventuate from  the tax."                                                              
He noted  that the language  could be modified  to restrict  it to                                                              
primary residences  only; he added,  "That's compatible  with some                                                              
other programs in the state, so there are options there."                                                                       
                                                                                                                                
Number 0700                                                                                                                     
                                                                                                                                
REPRESENTATIVE JAMES  asked if it was the intent  [of the sponsor]                                                              
that  there be  a  separate itemized  deduction  schedule for  the                                                              
State  of Alaska  to  determine  whether there  is  any income  or                                                              
expenses  from outside  the state  that would  be recognized  as a                                                              
state tax,  particularly on  part-time residents or  nonresidents.                                                              
She also  asked Mr. Benintendi  if it would  be expected  that the                                                              
federal tax  paid would  be an itemized  deduction, just  as state                                                              
tax is  an itemized deduction [on  federal taxes].   She remarked,                                                              
"If you  didn't do  that little  calculation, you'd find  yourself                                                              
having the  state tax deduction,  which reduces your tax,  ... and                                                              
it doesn't seem fair to me."  She then said:                                                                                    
                                                                                                                                
     If we're going  to piggyback on the federal  tax at all,                                                                   
     I  would   prefer  starting  with  the   adjusted  gross                                                                   
     income.    The  reason  for  that  is  there's  lots  of                                                                   
     playing around  with different  benefits of credits  ...                                                                   
     and  so  forth, at  the  federal  level, which  I  don't                                                                   
     necessarily believe Alaska should be buying into.                                                                          
                                                                                                                                
Number 0800                                                                                                                     
                                                                                                                                
MR. BENINTENDI  said [HB  10] would only  tax income  from sources                                                              
within Alaska.   He  asked Representative  James if that  answered                                                              
part of her question.                                                                                                           
                                                                                                                                
REPRESENTATIVE JAMES  replied yes.   She added, "We're  making the                                                              
tax  return  more  complicated,   because  now  everybody  has  to                                                              
separate, and the federal tax doesn't do that."                                                                                 
                                                                                                                                
MR. BENINTENDI admitted "that could very well be."                                                                              
                                                                                                                                
CHAIR  COGHILL noted  that  the foregoing  is  in Section  5.   He                                                              
indicated it  would leave that open.   He asked Mr.  Benintendi to                                                              
explain the  rationale of starting  with the liability  instead of                                                              
the adjusted gross income.                                                                                                      
                                                                                                                                
MR.  BENINTENDI  said  he  couldn't explain,  other  than  it  was                                                              
Representative  Moses' preference.   He  noted that  this was  the                                                              
eighth year the Representative Moses had submitted this bill.                                                                   
                                                                                                                                
Number 0866                                                                                                                     
                                                                                                                                
REPRESENTATIVE JAMES  stated that she has avidly  supported a flat                                                              
tax, not  a graduated  one, because of  her experience  in working                                                              
in  payroll  a long  time  ago.    At  that time,  she  said,  she                                                              
witnessed  people getting  an increase  in their  [gross] pay  but                                                              
receiving  a smaller  check because  they  were then  in a  higher                                                              
[tax] category.   She said people had asked her  to calculate what                                                              
their  incomes would  be  if their  spouse  went to  work -  which                                                              
would  move them  into a  higher  tax bracket  - and  if they  put                                                              
their children into  childcare.  She said her rationale  is:  "For                                                              
those  people who  work harder,  longer, and  smarter, why  should                                                              
they work for a smaller dollar?"                                                                                                
                                                                                                                                
Number 0935                                                                                                                     
                                                                                                                                
CHAIR COGHILL offered  his belief that a tax  credit against local                                                              
taxes is good idea.   He asked Mr. Benintendi if  that would allow                                                              
for other exceptions and other credits.                                                                                         
                                                                                                                                
MR.   BENINTENDI  answered   that   possibly   other  credits   or                                                              
deductions  could  be  applied;   however,  it's  fairly  easy  to                                                              
determine what real  estate taxes have been paid in  [Alaska].  He                                                              
said he  thinks the  department's estimate of  the amount  of real                                                              
estate  property   tax  paid  in   the  state  is   $451  million.                                                              
According to the  department, he noted, the personal  property tax                                                              
amount  is difficult  to identify.   He  said he  was not  certain                                                              
why,   but  suspected   there  were   different  inclusions   from                                                              
community to community.  He added, "They've wrestled with it."                                                                  
                                                                                                                                
CHAIR   COGHILL  commented   that  property   tax  valuation   has                                                              
significant effects in other areas of the world, as well.                                                                       
                                                                                                                                
Number 1019                                                                                                                     
                                                                                                                                
REPRESENTATIVE CRAWFORD  asked Mr. Benintendi  if he had  done any                                                              
calculations regarding  "breaking it  down from people's  personal                                                              
residence,  as opposed to  their rental  property that  they might                                                              
have."                                                                                                                          
                                                                                                                                
MR. BENINTENDI answered no.                                                                                                     
                                                                                                                                
REPRESENTATIVE  CRAWFORD  said he  could  see  a good  reason  for                                                              
people to get  a break on their  own residence, but not  on rental                                                              
property.                                                                                                                       
                                                                                                                                
MR. BENINTENDI  commented that people  may have cabins out  in the                                                              
wilderness, or  in other boroughs,  for example.  He  added, "It's                                                              
pretty  generous, but  that's what  Representative  Moses ...  has                                                              
wanted all these years."                                                                                                        
                                                                                                                                
Number 1060                                                                                                                     
                                                                                                                                
REPRESENTATIVE  JAMES mentioned  her own  tax bill  of four  years                                                              
ago.   She said one  of the purposes  for her flat-tax  income tax                                                              
was to  "nullify the  argument between those  people in  the rural                                                              
areas and the urban  areas who do or do not help  to pay for their                                                              
education."   Furthermore, in her  tax, if people paid  a property                                                              
tax  on   their  residence  and   a  portion  of  that   "was  for                                                              
education,"  then  those people  would  get  a credit;  those  who                                                              
didn't pay a property tax didn't [get that credit].                                                                             
                                                                                                                                
REPRESENTATIVE  JAMES mentioned  forcing  the  boroughs "on  these                                                              
people so  they'll force them  to pay"  for their education.   She                                                              
mentioned taking  long testimony in the past  without ever hearing                                                              
a single person  say he/she didn't want to pay.   She added, "They                                                              
didn't have  a provision to pay,  and I thought, 'That  would keep                                                              
that.'"  Referring  to the property tax, she  asked Mr. Benintendi                                                              
whether  [the  sponsor]  had  considered  simply  making  it  "the                                                              
amount that you pay for education on your personal residence."                                                                  
                                                                                                                                
MR.   BENINTENDI    responded   that   he   hadn't    heard   from                                                              
Representative  Moses that  he'd  considered that.   He  commented                                                              
that those  areas in rural Alaska  that do not pay a  property tax                                                              
locally,  of   course,  cannot   take  advantage  of   the  credit                                                              
[proposed  in HB  10].    He said  he  suspected that  the  reason                                                              
Representative Moses  included personal  property tax in  the bill                                                              
was  to "hook  in  some  of those  areas  that may  have  personal                                                              
property taxes,  but not local."   He added  that he did  not know                                                              
if there were many of those.                                                                                                    
                                                                                                                                
Number 1172                                                                                                                     
                                                                                                                                
REPRESENTATIVE WILSON  offered that many fishermen  have homes [on                                                              
which they  pay] property tax,  but have  a business on  a fishing                                                              
boat.  In many  areas, there is no property tax  on that boat, she                                                              
said.  She asked, "How would that affect the fishermen?"                                                                        
                                                                                                                                
MR.  BENINTENDI answered,  "If they  pay no  property taxes,  that                                                              
wouldn't  affect  that  nonresidential  property,  as far  as  I'm                                                              
aware."   He explained  that if  those fishermen  were not  paying                                                              
tax on  that boat  "out somewhere,"  they wouldn't  be "using  the                                                              
credit here."                                                                                                                   
                                                                                                                                
REPRESENTATIVE WILSON  said, "So, then,  they would have  to claim                                                              
the boat and  then pay the tax  on the boat.  Is that  what you're                                                              
saying?"   She added, "There's no  exemptions.  So, ...  they just                                                              
don't have  to count  that at all,  then?  Or  that's just  a moot                                                              
point?"                                                                                                                         
                                                                                                                                
[An unidentified speaker said, "Uh-hum."]                                                                                       
                                                                                                                                
Number 1230                                                                                                                     
                                                                                                                                
REPRESENTATIVE  STEVENS sought  clarification  regarding what  the                                                              
"old tax" was.  He said he thought it was 20 percent.                                                                           
                                                                                                                                
[Several   committee   members  simultaneously   offered   numbers                                                              
between 16 and 18.]                                                                                                             
                                                                                                                                
REPRESENTATIVE  STEVENS asked for  a definitive  answer.   He said                                                              
the more it could be kept simple, the better off it would be.                                                                   
                                                                                                                                
MR. BENINTENDI  said he was guessing  from memory that  the number                                                              
was 18 percent.   Regarding Representative Stevens'  suggestion to                                                              
keep it simple, he said, "Oh, yes, sir."                                                                                        
                                                                                                                                
Number 1275                                                                                                                     
                                                                                                                                
MR.  BENINTENDI, in  response  to a  request  from Chair  Coghill,                                                              
said the  anticipated income in  the first year, according  to the                                                              
bill's  currently written  graduated format,  is approximately  $2                                                              
million, rising to  $82 million in the third year.   He said those                                                              
are  estimated  figures  from the  Department  of  Revenue,  which                                                              
included  "their  wrestling  with  ...  the  personal-property-tax                                                              
side of that issue."                                                                                                            
                                                                                                                                
MR. BENINTENDI  told the committee  that Representative  Moses had                                                              
changed  his mind  in one regard:   He  would like  to remove  the                                                              
graduated  feature   because  he  realizes  the   income  is  very                                                              
"light."                                                                                                                        
                                                                                                                                
CHAIR COGHILL  offered his  understanding that  the burden  to the                                                              
individual would  be to fill out  the federal tax form  and submit                                                              
it to  the state with  [the state's]  form, "starting  at whatever                                                              
the tax  liability is."   He indicated  the state form  would then                                                              
"give them the multiplier - whatever that percentage was."                                                                      
                                                                                                                                
MR. BENINTENDI said  yes.  He clarified that people  would have to                                                              
submit a copy  of their federal  tax filing to the state,  and the                                                              
state would retain it in their records for a period of time.                                                                    
                                                                                                                                
CHAIR COGHILL  asked, "Are  we going  to run afoul  of 'how  do we                                                              
describe a resident [and] nonresident?'"                                                                                        
                                                                                                                                
MR.  BENINTENDI  answered  that  he  didn't think  so.    He  said                                                              
Representative  Moses was  "most anxious  to hook in  out-of-state                                                              
workers who  actually work  up here,"  to have  them pay  "more of                                                              
their  way  up  here."    He  explained  that  most  of  them  are                                                              
seasonal,  tourism  and  fisheries  workers.   Under  the  current                                                              
proposed bill, the  estimated income from that pool  of workers is                                                              
less  than $3  million  - a  modest  amount, which  he  said is  a                                                              
subject for amendment.                                                                                                          
                                                                                                                                
Number 1435                                                                                                                     
                                                                                                                                
REPRESENTATIVE STEVENS  surmised that if  people earn a  salary in                                                              
Alaska,  they can  only  be given  credit  for  taxes paid  within                                                              
Alaska.                                                                                                                         
                                                                                                                                
MR. BENINTENDI concurred.                                                                                                       
                                                                                                                                
Number 1456                                                                                                                     
                                                                                                                                
CHAIR COGHILL  recognized the sponsor's  willingness to  amend out                                                              
the "step  up," and  indicated that  15-20 percent  would  [be the                                                              
amount of] the federal income tax liability.                                                                                    
                                                                                                                                
Number 1472                                                                                                                     
                                                                                                                                
REPRESENTATIVE WILSON asked what the total was.                                                                                 
                                                                                                                                
MR.  BENINTENDI  said  under  the   third  tier  of  the  bill  as                                                              
presently written,  the income would  be between  $90-$100 million                                                              
- probably  closer to $90  million.  He  noted that  the foregoing                                                              
was not "net  of the cost of  the program."  Last year,  there was                                                              
an  estimated administrative  cost  of approximately  $3  million,                                                              
whereas,  to his  understanding, currently  it is  "up around"  $7                                                              
[million].                                                                                                                      
                                                                                                                                
CHAIR  COGHILL informed  Mr. Benintendi  of  the comparison  sheet                                                              
[of  the  three  similar bills]  provided  by  the  administration                                                              
[included in the committee packet].                                                                                             
                                                                                                                                
Number 1538                                                                                                                     
                                                                                                                                
REPRESENTATIVE CRAWFORD  said he would  like to make  a conceptual                                                              
amendment   to  keep   the  property   tax   "just  for   personal                                                              
residences."                                                                                                                    
                                                                                                                                
CHAIR  COGHILL indicated  that before  considering amendments,  he                                                              
would bring a  proposed committee substitute of the  sales tax for                                                              
consideration.  [HB 10 was held over.]                                                                                          
                                                                                                                                
HB 199-INCOME TAX: INDIVIDUALS/TRUSTS/ESTATES                                                                                 
                                                                                                                                
[Contains discussion of HB 10 and HB 413]                                                                                       
                                                                                                                                
Number 1609                                                                                                                     
                                                                                                                                
CHAIR  COGHILL announced  the  final  order of  business,  SPONSOR                                                              
SUBSTITUTE FOR HOUSE  BILL NO. 199, "An Act relating  to taxation,                                                              
including  taxation   of  income  of  individuals,   estates,  and                                                              
trusts."                                                                                                                        
                                                                                                                                
Number 1623                                                                                                                     
                                                                                                                                
REPRESENTATIVE  BILL HUDSON,  Alaska  State Legislature,  sponsor,                                                              
came  forward to  present SSHB  199.   He brought  attention to  a                                                              
chart that  he said was predicated  upon the most  current figures                                                              
from  the  Department  of  Revenue,   the  Office  of  Budget  and                                                              
Management (OMB), and  others.  By 2003 and beyond,  he noted, the                                                              
state  is looking  at  a  billion-dollar  shortfall in  the  money                                                              
required to  balance the books -  which there is  a constitutional                                                              
responsibility to do.  He told members:                                                                                         
                                                                                                                                
     Working with  the fiscal policy caucus, and  having been                                                                   
     working  on this issue  - and,  frankly, taking some  of                                                                   
     my lead  from the majority  leader here some  years back                                                                   
     -  we  have  put  together  what we  think  ...  is  one                                                                   
     element of  a cure - or at  least a portion of  the cure                                                                   
     - to this  fiscal gap, to try to increase  the recurring                                                                   
     revenue stream  so as to avoid  falling off the  edge of                                                                   
     that ... proverbial cliff.                                                                                                 
                                                                                                                                
REPRESENTATIVE HUDSON  pointed out that the  Constitutional Budget                                                              
Reserve  (CBR), which  has  become the  "filler,"  is expected  to                                                              
essentially be  gone by 2004.   When that  occurs, the  only other                                                              
major  account available  will  be  the Earnings  Reserve  Account                                                              
(ERA) of  the permanent fund.   Suddenly, schools,  public safety,                                                              
maintenance of  roads, matching  federal money, keeping  prisoners                                                              
in prisons,  and so  forth will  compete with  the permanent  fund                                                              
dividend (PFD).                                                                                                                 
                                                                                                                                
REPRESENTATIVE   HUDSON  told  members   that  according   to  top                                                              
advisors  for the  permanent fund  who'd spoken  before the  House                                                              
Finance  Standing Committee  two  days ago,  the entire  permanent                                                              
fund could  be hurt if "we try  to feed both dividends  and making                                                              
up the  fiscal gap  out of  the earnings  of the permanent  fund";                                                              
right  now, the  ERA levels  things out  so that  there is  enough                                                              
money to both inflation-proof the fund and pay the dividends.                                                                   
                                                                                                                                
REPRESENTATIVE HUDSON  noted that he'd  served on the  House State                                                              
Affairs  Standing Committee  for four  of his  sixteen years  as a                                                              
legislator.    He  acknowledged  that  the  committee  must  first                                                              
consider  policy, followed  by the  elements  of the  policy.   He                                                              
suggested  the chart  makes  the case  for  why he  is willing  to                                                              
author legislation  regarding such  an onerous thing  as returning                                                              
taxes to Alaska.                                                                                                                
                                                                                                                                
REPRESENTATIVE   HUDSON   reported    that   he'd   had   numerous                                                              
conversations with  former Governor Jay Hammond,  "who laments the                                                              
fact that he permitted  the ... personal income tax  to totally be                                                              
removed  from the  books; he  felt  ... he  should have  suspended                                                              
it."   Nonetheless, Representative  Hudson said, people  in Alaska                                                              
have paid no  [state] income taxes, have received  a dividend, and                                                              
have watched oil  [royalties] "build many of the  wonderful things                                                              
that we have in the state of Alaska."                                                                                           
                                                                                                                                
[There was  a motion to adopt  the sponsor substitute,  but it was                                                              
already before the committee.]                                                                                                  
                                                                                                                                
Number 1845                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HUDSON explained  that his  bill uses  a flat  tax                                                              
based on  a percentage of  the federal  gross income.   He'd tried                                                              
to make  it as  simple as  possible, he  said.   It starts  with 1                                                              
percent of  the adjusted gross  income in  the first year,  "so as                                                              
not  to be  too  weighty  on ...  any  taxpayer  in the  state  of                                                              
Alaska."  He estimated  it would cost about $350  per household in                                                              
the  first year,  and would  yield approximately  $118 million  in                                                              
revenue.   It  would then  rise to  2.25 percent  of the  adjusted                                                              
gross income  in the following years;  based on an  average salary                                                              
across  the state,  he  suggested  it would  cost  about $680  per                                                              
household in the  second year, and would yield  approximately $285                                                              
million.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  HUDSON  remarked,  "By  all of  the  figures  that                                                              
we've seen,  ... it  would be about  half of  the taxes  that were                                                              
paid  by Alaskans  under the  old  tax mechanisms,  which was  far                                                              
more complicated."   He conveyed his belief that  the average cost                                                              
per Alaskan  household would  be less  than $900  for the  new tax                                                              
liability.   Even  if there  were a  decreased PFD  of $1,000  per                                                              
individual,  households  of two  or  more  people would  pay  some                                                              
money  for government  services  and still  be able  to spend  the                                                              
remaining dividends.                                                                                                            
                                                                                                                                
REPRESENTATIVE  HUDSON   referred  to  a  handout   that  compares                                                              
various proposals.   He pointed  out that the governor's  proposed                                                              
legislation would  bring in $350  million, but is  predicated upon                                                              
the federal  tax after  deductions.  By  contrast, SSHB  199 would                                                              
bring in  $285 million [after  the first  year], using a  flat tax                                                              
based upon  the adjusted gross income  found on the first  page of                                                              
the federal  tax form.  Allowable  deductions change over  time on                                                              
the  federal level,  he noted.   He  asked who  is to  say that  a                                                              
deduction for a  second home, mobile home, or  other investment is                                                              
what Alaskans should adopt as the basis for taxation.                                                                           
                                                                                                                                
REPRESENTATIVE  HUDSON explained  that under  SSHB 199,  everybody                                                              
who receives taxable  income will pay 1 percent in  the first year                                                              
- even if the income  is from a PFD; a $1,000 PFD  would require a                                                              
tax of $10.   He remarked that  it would be the first  "tax back,"                                                              
which former  Governor Hammond  has indicated  he believes  is one                                                              
element the state  should look at:   "If you want to  take some of                                                              
the permanent  fund money, rather  than capping it, tax  it back."                                                              
A  child's  PFD  is  now  included  in  the  adult's  income  tax,                                                              
Representative Hudson  added, "and  so it would still  essentially                                                              
be tapped."                                                                                                                     
                                                                                                                                
Number 2010                                                                                                                     
                                                                                                                                
REPRESENTATIVE HUDSON continued:                                                                                                
                                                                                                                                
     Somebody mentioned,  "What about rural Alaskans  who pay                                                                   
     no taxes,  who receive  exceptionally high  governmental                                                                   
     money  for  education,  for example,  on  a  per-student                                                                   
     basis?"   I  heard  [it's]  something like  $20,000  per                                                                   
     student in certain  ... districts.  This would  at least                                                                   
     begin to take some of that money back.                                                                                     
                                                                                                                                
     How  does  it  treat nonresidents?    There  are  65,000                                                                   
     nonresidents  that are  employed  in ...  Alaska in  ...                                                                   
     the year  2000.  Those  65,000 nonresidents took  home -                                                                   
     to  their states  of  Washington, Idaho,  wherever  they                                                                   
     came  from  -  ...  something  close  to  $905  million,                                                                   
     paying not one thin dime to the State of Alaska.                                                                           
                                                                                                                                
     Mr.  Chairman,   we  believe  that  they   should  start                                                                   
     paying.  We  believe at 1 percent, that  would cost them                                                                   
     approximately  $9 million;  at [2.25  percent] it  would                                                                   
     be ...  close to  $20 million  dollars. ... Again,  from                                                                   
     my good friend  [former governor] Jay Hammond,  we can't                                                                   
     let these  people come up here,  take the bounty  of the                                                                   
     State of Alaska,  incur costs to the State  of Alaska in                                                                   
     the  form of health  and social  services and  education                                                                   
     and corrections  and ... things of that nature,  and not                                                                   
     pay  a portion  of  that.   So this  would  begin to  at                                                                   
     least take some  of the money that is leaving  the state                                                                   
     ... and bring it back in....                                                                                               
                                                                                                                                
Number 2075                                                                                                                     
                                                                                                                                
REPRESENTATIVE HUDSON  mentioned asking  for a model to  get ideas                                                              
as to how  the bill would affect  Alaskans.  He said  the data was                                                              
based on  the 1999  tax year.   He  referred to  a handout  in the                                                              
committee packet,  "% of  Adjusted Gross  Income," which  shows in                                                              
the top  left box  the [target  revenue] amount  of $285  million.                                                              
Representative Hudson  asked committee members to look  at the $0-                                                              
to-$20,000  range,  which  shows   that  142,308  households  paid                                                              
approximately $24 million of that $285 million.  He continued:                                                                  
                                                                                                                                
     If you follow  it across, you can see how  much each one                                                                   
     of these  tax categories  of the  adjusted gross  income                                                                   
     would end  up paying.  So it  runs all the way  from $24                                                                   
     million  at the  bottom end  to $87 million  at the  top                                                                   
     end.   And that,  incidentally, is  essentially what  is                                                                   
     done by all the other tax measures, as well.                                                                               
                                                                                                                                
REPRESENTATIVE HUDSON  referred to  the governor's bill,  which he                                                              
said  was  presently  before  the  committee.    He  continued  as                                                              
follows:                                                                                                                        
                                                                                                                                
     It would  run at  the lower end,  $11 million of  [$]350                                                                   
     [million]  to  $165 million  at  over [$]100,000.    And                                                                   
     incidentally,  I went back  and I  modeled the last  one                                                                   
     that  the governor  had put  together, as  well.  And  I                                                                   
     think  one of the  reasons that  the legislature  in its                                                                   
     wisdom  chose not  to take  up  the governor's  proposal                                                                   
     that  he submitted  several  years ago  was  - at  least                                                                   
     what I heard  from my colleagues - was that  it took far                                                                   
     too little  from people at  the low end of  the spectrum                                                                   
     and far too much [from] the high end of the spectrum.                                                                      
                                                                                                                                
     So, what  we've tried  to do was to  pick a method  that                                                                   
     balanced it  out to the  extent possible.   Those people                                                                   
     [who]  make more [money  would] clearly  be paying  more                                                                   
     of the  bill.  But people at  the low end of  the scale,                                                                   
     too, also  receive most of  the services and  should pay                                                                   
     ... part of the cost.                                                                                                      
                                                                                                                                
REPRESENTATIVE  HUDSON  suggested,  in essence,  that  legislators                                                              
could do  various things with  the figures.   If the 1  percent is                                                              
not favored,  it can  be eliminated,  and the  decision to  "start                                                              
it" next year, for  example, can be made.  He said,  "You get less                                                              
money;  you  don't  get  that  $100   million  first  year."    He                                                              
explained, "We  put that in there  because there is going  to be a                                                              
cost of  setting up  the tax mechanism.   We're  going to  have to                                                              
pay money in order to set this whole monster back up there."                                                                    
                                                                                                                                
Number 2195                                                                                                                     
                                                                                                                                
REPRESENTATIVE HUDSON  disagreed with the governor's  fiscal note,                                                              
which  shows   $12  million  in   the  first  year,   dropping  to                                                              
approximately $7.5  million thereafter.  He said he'd  like to "go                                                              
back  to the  governor's  last fiscal  note,"  which was  included                                                              
with [the  governor's] own bill  and was only about  $3.5 million.                                                              
Speaking  as a  member  of the  House Finance  Standing  Committee                                                              
that will  be the next to  hear [SSHB 199], Representative  Hudson                                                              
said whatever  "we" do,  he would  make certain  that the  cost is                                                              
not inflated.                                                                                                                   
                                                                                                                                
REPRESENTATIVE  HUDSON  referred   to  a  copy  of  the  [Internal                                                              
Revenue Service  (IRS) Form]  1040.  He  said, "My tax  applies to                                                              
line  33 on the  2001 and  - I  suspect it'll  be -  the 2002  tax                                                              
form.  So  anybody in Alaska will  be able to look at  line 33 and                                                              
take 1 percent of that."                                                                                                        
                                                                                                                                
Number 2241                                                                                                                     
                                                                                                                                
REPRESENTATIVE   JAMES  surmised  that   the  tax  returns   being                                                              
identified were  those with an Alaska  address, as opposed  to any                                                              
Alaskan  residents who  are filing  a  federal tax  return with  a                                                              
"different address."   She said she thought [a  category] that was                                                              
being left  out was  all those  people who  worked in  Alaska "not                                                              
full-time" and  have other income  in other states for  which they                                                              
file a tax return  - the same people who "we're  hoping to be able                                                              
to help us to pay."   She asked, "How do you include  them in this                                                              
tax  return,   and  how  do   you  differentiate   between  Alaska                                                              
residents and nonresidents with Alaska income?"                                                                                 
                                                                                                                                
REPRESENTATIVE  HUDSON mentioned  deferring to  [Neil Slotnick  of                                                              
the  Department  of Revenue].    He  added,  "I  think we  take  a                                                              
percentage of it,  so that whatever percentage of  their income is                                                              
made in ... Alaska is taxed by the State of Alaska."                                                                            
                                                                                                                                
Number 2301                                                                                                                     
                                                                                                                                
CHUCK HARLAMERT,  Juneau Section  Chief, Tax Division,  Department                                                              
of Revenue, offered  that Mike [Williams, who was  online from the                                                              
Department  of  Revenue]  would  be  a  better  person  to  answer                                                              
regarding  revenue  impact  of residents  and  nonresidents.    He                                                              
continued as follows:                                                                                                           
                                                                                                                                
     In all  three of the  bills, essentially, the  treatment                                                                   
     of residents  and nonresidents is the same,  in terms of                                                                   
     if  you're  a  resident,  we  tax you  on  all  of  your                                                                   
     income,  and then  if  you happen  to  have business  in                                                                   
     another state  and are taxable  there, we'll give  you a                                                                   
     credit  based upon the  taxes you  pay the other  state.                                                                   
     And that's pretty much the same through all the bills.                                                                     
                                                                                                                                
     Similarly, if  you are a nonresident, we tax  you on the                                                                   
     income that  is deemed to be  earned in Alaska.   That's                                                                   
     the difference.  ... The  differences between the  three                                                                   
     bills  on   ...  that  issue   is  how  you   make  that                                                                   
     determination.   And  the  only difference  between  the                                                                   
     three  bills  is,  in essence,  how  you  calculate  the                                                                   
     fraction of income that is earned in [Alaska].                                                                             
                                                                                                                                
TAPE 02-10, SIDE B                                                                                                              
Number 2389                                                                                                                     
                                                                                                                                
MR. HARLAMERT  concluded that fundamentally,  there isn't  a great                                                              
difference.                                                                                                                     
                                                                                                                                
REPRESENTATIVE JAMES followed up:                                                                                               
                                                                                                                                
     However, since  this tax is based on the  adjusted gross                                                                   
     income, you  don't have playing with the numbers  on the                                                                   
     rest of  getting to the  tax in this  one, as you  would                                                                   
     in the other,  because where you'd have to  have whether                                                                   
     property tax  from another  state is deducted  from your                                                                   
     federal  [return]  -  and that  wouldn't  be  allowed  -                                                                   
     and/or any other business expenses.                                                                                        
                                                                                                                                
     And  that's one  of the  concerns  that I  have, is  the                                                                   
     2106  - the  types of  deductions at  the federal  level                                                                   
     for people  who may  have some  expenses working  in the                                                                   
     state  - how  does  that relate,  because  now the  2106                                                                   
     doesn't come on  the front like it used to;  it comes on                                                                   
     the ... itemized deductions.                                                                                               
                                                                                                                                
MR. HARLAMERT  said he  thought Representative  James was  correct                                                              
that   when  the   tax  is   apportioned  on   the  federal   tax,                                                              
incorporated  are all of  the deductions  inherent in  the federal                                                              
tax liability.   He added  that when "you  don't go that  far down                                                              
your  tax returns"  and  stop it  at  adjusted  gross income,  one                                                              
avoids any impacts of ...                                                                                                       
                                                                                                                                
REPRESENTATIVE  HUDSON   offered,  "Second  homes   in  Washington                                                              
State."                                                                                                                         
                                                                                                                                
MR. HARLAMERT said yes.                                                                                                         
                                                                                                                                
REPRESENTATIVE  HUDSON   noted  that  he  was  working   with  two                                                              
different  [bill] versions  and  was "becoming  educated  " as  he                                                              
proceeded.  He continued as follows:                                                                                            
                                                                                                                                
     On  page  4  of  the  draft   that  you've  now  adopted                                                                   
     [Version J], it  does cover the ... credit  under (a) of                                                                   
     this  section for  a nonresident,  which multiplies  the                                                                   
     tax computed  by a fraction,  the numerator of  which is                                                                   
     the  income derived  from sources in  other state[s]  or                                                                   
     territories.                                                                                                               
                                                                                                                                
REPRESENTATIVE  HUDSON offered  his belief  that this  was how  it                                                              
was  done  in  the  past.    He  urged  members  to  consider  how                                                              
complicated  to make it.   He noted  that on  the second  page [of                                                              
the  federal return],  deductions are  in constant  flux, even  in                                                              
Washington,  D.C., where there  is talk  about reducing  taxes and                                                              
giving numerous credits.  He told the committee:                                                                                
                                                                                                                                
     I  think we're  better off  to  do something  that is  a                                                                   
     very  small percentage  of whatever  the actual wage  is                                                                   
     on  the bottom  of  this whole  thing  -  a very  clear,                                                                   
     straightforward, flat  tax.  And then you  don't have to                                                                   
     worry  about the  question  of whether  or not  somebody                                                                   
     from California  is up  ... here and  going to  go ahead                                                                   
     and try  to claim - through  the federal tax  mechanism,                                                                   
     at any  rate -  all of these  other adjustments  and end                                                                   
     up [with] Alaska holding the bag.                                                                                          
                                                                                                                                
     We want  to try to  get a fair  return on any  and every                                                                   
     wage that's  earned in  ... Alaska  before all of  these                                                                   
     political  exemptions and other  manipulations that  are                                                                   
     taking  place by  the federal  government  [occur].   We                                                                   
     don't   want  to   be   [controlled]   by  the   federal                                                                   
     government.     That's  the  reason  that  I   put  this                                                                   
     substitute in.                                                                                                             
                                                                                                                                
CHAIR   COGHILL   said,   "And   as   I   understand   it,   then,                                                              
Representative  Hudson, the ability  for us  to start  the laundry                                                              
list of  exemptions and/or  deductions would  be -- we'd  end that                                                              
argument."                                                                                                                      
                                                                                                                                
REPRESENTATIVE HUDSON concurred.                                                                                                
                                                                                                                                
Number 2245                                                                                                                     
                                                                                                                                
REPRESENTATIVE JAMES said, "I agree with the department."                                                                       
                                                                                                                                
REPRESENTATIVE HUDSON  mentioned a fiscal note prepared  [for] the                                                              
governor by  the Department of Revenue  when he put forth  his tax                                                              
bill forward a couple of years ago.                                                                                             
                                                                                                                                
Number 2209                                                                                                                     
                                                                                                                                
REPRESENTATIVE STEVENS  told Representative Hudson  he appreciated                                                              
the  clarity of  the charts  he'd provided.   He  referred to  the                                                              
bottom  line  and  asked  Representative  Hudson  if  it  was  his                                                              
understanding  that  if  nothing   is  done,  the  impact  on  the                                                              
permanent fund dividend (PFD) will be a regular reduction.                                                                      
                                                                                                                                
REPRESENTATIVE   HUDSON  said  yes,   indicating  that   was  [the                                                              
testimony of] "experts in the House" two days ago.                                                                              
                                                                                                                                
Number 2185                                                                                                                     
                                                                                                                                
REPRESENTATIVE  JAMES mentioned  seeking a  fiscal solution.   She                                                              
said  the big boon  that [the  state]  had - and  the big  surplus                                                              
provided  at the  federal  level  - was  not  a surplus  from  the                                                              
increase from  tax conditions,  but was  because more  people were                                                              
making  more money.    She said  she was  not  convinced that  the                                                              
amount of  taxes that can be  collected from the  existing earners                                                              
in [Alaska] can  be sustained without higher wages,  more workers,                                                              
and increased  revenues -  not by  raising the  tax rates,  but by                                                              
having  more  people  pay.    She  added,  "If  I'm  going  to  be                                                              
supporting  any kind of  taxes at  all, we have  to have  some ...                                                              
method of  addressing how  we're going to  get more  people making                                                              
more money in the state."                                                                                                       
                                                                                                                                
Number 2130                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HUDSON  concurred.   He  added,  "I hope,  at  any                                                              
rate, that  we would see that this  is an element that  will begin                                                              
to make  the connection between  expanded workers in the  state of                                                              
Alaska  and the  expanded costs,  and how  it's going  to be  paid                                                              
for."   He then mentioned  "the Alaska  disconnect" - that  if the                                                              
economy  in  Alaska  is increased  and  numerous  people  open  up                                                              
businesses  -  a microchip  factory  in  the Matanuska  Valley  or                                                              
building General  Electric dishwashers  in Fairbanks,  for example                                                              
- the increased  number of people coming into the  state will also                                                              
increase  the burden  on services  those people  require, such  as                                                              
schools.   He  noted  that those  people  pay nothing;  therefore,                                                              
they  cost [the  state]  money and  "dilute  our  dividend."   For                                                              
example,  if there were  10,000 more  people, everyone's  dividend                                                              
would  be proportionately  less.   Representative  Hudson said  he                                                              
agreed with [Representative James], but had wanted to add that.                                                                 
                                                                                                                                
Number 2068                                                                                                                     
                                                                                                                                
REPRESENTATIVE   FATE  said   both   [Representative  Hudson   and                                                              
Representative James]  were correct,  but bringing in  more people                                                              
requires more  jobs and  a condition in  Alaska that  is "friendly                                                              
to the  increase of industry and  businesses."  He  suggested that                                                              
whenever [the  legislature] discusses taxes  of any kind,  it must                                                              
also discuss state spending and fiscal restraint.                                                                               
                                                                                                                                
REPRESENTATIVE HUDSON concurred.                                                                                                
                                                                                                                                
Number 2021                                                                                                                     
                                                                                                                                
CHAIR COGHILL  offered that  the "upward  pressure of  this year's                                                              
budget would  only just fill the  expansion of our  government, or                                                              
very  close to that."   He  said that  troubled him;  it would  be                                                              
hard to  go to his  constituents and say,  "Well, we'll  expand it                                                              
with this  tax, and  then next  year we'll  start biting  into the                                                              
deficit."   Referring  to  a  previous comment  by  Representative                                                              
James,  he said,  "We've got  to take  our hands  off some of  the                                                              
places  where we've  made  it harder  for  businesses  to grow  in                                                              
Alaska."                                                                                                                        
                                                                                                                                
Number 1998                                                                                                                     
                                                                                                                                
REPRESENTATIVE    JAMES    mentioned    previous    comments    by                                                              
Representative Fate  and Chair Coghill  regarding spending.   In a                                                              
state  with 100-percent  control over  all the  resources and  how                                                              
business  is created,  she  said,  it will  be  difficult to  make                                                              
money "in those  areas," because there are  insufficient employees                                                              
to provide  prompt service to  requests for permits,  for example,                                                              
to  help  people  understand  that [Alaska]  is  "truly  open  for                                                              
business."    When  decisions  regarding   budget  reductions  and                                                              
decreased   spending  are   made,  specific   areas  need   to  be                                                              
considered as  well as  the overall picture,  she said,  to decide                                                              
how to create a [business-friendly] atmosphere.                                                                                 
                                                                                                                                
Number 1938                                                                                                                     
                                                                                                                                
CHAIR  COGHILL   noted  that  as   the  chair  of   the  resources                                                              
subcommittee  of the House  Finance Committee,  [he'd] heard  part                                                              
of that discussion the prior day.                                                                                               
                                                                                                                                
REPRESENTATIVE  HUDSON said  he  thought "we're  all  on the  same                                                              
page in  that respect."   He  mentioned the  attempt to  constrain                                                              
growth of government  and cited the following examples  of growth:                                                              
a cost-of-living  increase,  more students  entering schools,  the                                                              
increase of the  senior population, and more  Medicaid recipients.                                                              
As mentioned  in the prior  day's subcommittee meeting,  he noted,                                                              
the balance  is now  being discussed  over whether  to keep  parks                                                              
open  in   Alaska,  as  opposed   to  "putting  more   money  into                                                              
geological  engineers and  accountants  to make  certain that  the                                                              
state  receives the  maximum amount  of  money from  the sale  and                                                              
discovery of our oil" and the gas line, for example.                                                                            
                                                                                                                                
REPRESENTATIVE  HUDSON  described  himself  as an  optimist.    He                                                              
mentioned trying  to fill the  gap, slowing down  consumption, and                                                              
preserving  the  PFD  to  the  extent  possible.    Regarding  the                                                              
latter,  he  opined   that  he  did  not  think  "we   can  do  it                                                              
altogether," and  remarked, "You'll hear that next  Saturday."  He                                                              
agreed  regulations must  be  cleared up  to  ensure that  private                                                              
industry can "step  forward, invest their money,  create jobs, and                                                              
make a  profit."   He concluded  that [the  legislature] is  faced                                                              
with a big job,  and that this [proposed legislation]  is just one                                                              
small step to try to fill "an emergency gap."                                                                                   
                                                                                                                                
CHAIR  COGHILL offered  his  appreciation and  noted  that as  the                                                              
chair  of  the   House  State  Affairs  Standing   Committee,  his                                                              
reluctance  to  tax is  based  on  a reluctance  to  restrain  the                                                              
growth of  government, which he said  is a difficult thing  to do.                                                              
He said  he hoped  this would show  him the  details of  where the                                                              
money  will come from  and how  to constrain  "ourselves"  so that                                                              
the state doesn't go further into debt.                                                                                         
                                                                                                                                
CHAIR  COGHILL  referred to  [page  2,  lines 11-13,  Version  J],                                                              
which read:                                                                                                                     
                                                                                                                                
     An  individual whose  income  includes a  cost-of-living                                                                   
     allowance  that is exempt  from the  federal income  tax                                                                   
     shall determine  and include that amount as  part of the                                                                   
     individual's  taxable income  as  if the  cost-of-living                                                                   
     allowance were not exempt.                                                                                                 
                                                                                                                                
CHAIR COGHILL asked how that is possible.                                                                                       
                                                                                                                                
REPRESENTATIVE  HUDSON said  it can  be done  because "our"  taxes                                                              
are entirely  different  from the  federal tax.   The federal  tax                                                              
laws  exclude   the  federal  cost-of-living   [allowance],  which                                                              
varies, he  thought, between 18-25 percent  and used to  be a flat                                                              
25 percent  - every [federal]  employee from [another  state] that                                                              
came  to Alaska  received  an  untaxed 25  percent  cost-of-living                                                              
allowance.   He said "we"  think that is  part of the income.   He                                                              
offered,  "If   they  can  get   a  deduction  from   the  federal                                                              
government,  that's  fine."   He  added, "Now,  if  we  go to  the                                                              
second  page, then  they're  going  to get  the  credit for  that,                                                              
because it's in the federal makeup."                                                                                            
                                                                                                                                
CHAIR COGHILL agreed  the flat tax is "probably the  best place to                                                              
do it, because  it's the simplest  and you pay on your  ability to                                                              
earn."  He  said his concern  about an income tax  regards putting                                                              
a downward  pressure on  the workforce.   He asked  Representative                                                              
Hudson  if  he  anticipates  that "this  percentage  is  going  to                                                              
throttle us back."                                                                                                              
                                                                                                                                
Number 1741                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HUDSON suggested  that  is an  area the  committee                                                              
may want  to consider.   As  the author  of the  bill, he  said he                                                              
wouldn't have any  problem whatsoever in finding  an "exemption to                                                              
the trust," because  he was in the legislature when  it passed the                                                              
legislation  to encourage more  trust management  in the  State of                                                              
Alaska.   He  said it  does  accrue a  profit  to the  state.   He                                                              
suggested  [the legislature]  needs  to consider  whether  "taxing                                                              
that  element"  would  drive  that   business  to  "some  far  off                                                              
island," for example.                                                                                                           
                                                                                                                                
REPRESENTATIVE  HUDSON  said  he  hadn't  addressed  that  in  the                                                              
current draft before  the committee, but would  consider it before                                                              
the next  hearing.  He offered  [cooperation] with  Chair Coghill,                                                              
the chair of the House Judiciary Standing Committee, and others.                                                                
                                                                                                                                
CHAIR COGHILL said he wanted to consider that issue.                                                                            
                                                                                                                                
Number 1703                                                                                                                     
                                                                                                                                
REPRESENTATIVE  JAMES mentioned  discovering  whether  there is  a                                                              
way to separate trusts made Outside from trusts made in Alaska.                                                                 
                                                                                                                                
REPRESENTATIVE HUDSON responded, "Good idea."                                                                                   
                                                                                                                                
Number 1692                                                                                                                     
                                                                                                                                
CHAIR COGHILL asked  [Representative Hudson] how  he perceives the                                                              
process   in   regard   to   employers,   the   state,   and   the                                                              
administration.                                                                                                                 
                                                                                                                                
REPRESENTATIVE HUDSON  replied that there would be  no withdrawals                                                              
by  the  employer  in  the  first  year.    He  said  it  was  his                                                              
suggestion   that  the  tax   commence  on   January  1,   2002  -                                                              
essentially,  retroactively -  and  that it  be 1  percent of  the                                                              
adjusted  gross income.   He  mentioned  notification to  everyone                                                              
and  said, essentially,  the  forms  and setup  would  have to  be                                                              
undertaken  [by the  Department  of Revenue]  from  the date  that                                                              
this was passed into law.                                                                                                       
                                                                                                                                
REPRESENTATIVE HUDSON  listed the  following items for  which [the                                                              
Department   of   Revenue]  would   be   responsible:   electronic                                                              
computations,   worksheets,   system   changes,   schedules,   and                                                              
communications.   He said that is  why it's only 1 percent  in the                                                              
first  year -  it covers  the cost  of the  complete setup,  while                                                              
still providing  a surplus,  he believes,  "even at their  figures                                                              
of about ...  $80-$90 million, to actually start  applying against                                                              
that debt."                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HUDSON  explained   that  the  debt  will  not  be                                                              
appreciably affected  in the first  year' it will be  necessary to                                                              
use the  Constitutional Budget Reserve  (CBR) for  the difference.                                                              
In  the  second   year,  employers  would  have   the  forms;  the                                                              
department  would have set  up the  mechanisms; withholding  would                                                              
take place  on a periodic basis;  and the money would  flow to the                                                              
Department  of Revenue.    He said  he presumed  that  individuals                                                              
would file "the  appropriate page of their federal  income tax, or                                                              
their   adjusted    gross   income,    or   their    W-2   forms."                                                              
Representative Hudson  emphasized that he would need  to have this                                                              
discussion  with  the  Department  of  Revenue,  once  [SSHB  199]                                                              
appears to be moving forward.                                                                                                   
                                                                                                                                
CHAIR COGHILL  mentioned not  being able  to track certain  things                                                              
as  other states  do because  Alaska  does not  have state  income                                                              
tax.   He mentioned going  to an adjusted  gross income,  which he                                                              
said is  a flat tax;  he said  it would give  a different  look at                                                              
the  economy  from  looking  at the  federal  tax  liability,  for                                                              
example.   He asked  Representative Hudson  if he'd thought  about                                                              
what that would do regarding the provision of services.                                                                         
                                                                                                                                
REPRESENTATIVE HUDSON said he had not.                                                                                          
                                                                                                                                
CHAIR  COGHILL  opined  that  because   Alaska  provides  so  many                                                              
services, "this is  going to give us a look into  the economy that                                                              
we haven't had for the last 20-some years."                                                                                     
                                                                                                                                
REPRESENTATIVE   HUDSON   agreed   it  will   give   Alaskans   an                                                              
"ownership" in  the services provided  on their behalf.   He added                                                              
that people would  be able to look bureaucrats in  the eye and say                                                              
they want  to make sure  their tax dollars  are being used  in the                                                              
most  cost-efficient way.    Presently, he  said,  the people  pay                                                              
nothing and  receive everything;  therefore, there is  no downward                                                              
pressure  on those  who  [the  people] elect  to  make  laws.   He                                                              
concluded  that "this will  certainly provide  that nexus  between                                                              
the taxpayer and the government."                                                                                               
                                                                                                                                
CHAIR  COGHILL said  he thinks  there is  a nexus.   He offered  a                                                              
counterpoint  view that "just  using some of  the earnings  of the                                                              
permanent  fund has  been such a  political pressure  that  it has                                                              
driven us right to this very discussion."                                                                                       
                                                                                                                                
REPRESENTATIVE  HUDSON said  that  would be  a major  part of  the                                                              
discussion in [the upcoming hearing on Saturday, February 23].                                                                  
                                                                                                                                
Number 1452                                                                                                                     
                                                                                                                                
REPRESENTATIVE  JAMES offered  her belief  that making [the  bill]                                                              
retroactive  would  be  wrong  because   people  would  object  to                                                              
"having had  it be taxed for  something that they didn't  know was                                                              
taxed when  they got it."  She  urged having an effective  date of                                                              
January 2003 and  implementing the withholding concurrently.   She                                                              
recalled federal laws  when her husband had to start  paying on 85                                                              
percent  of  his   social  security,  which  was   a  substantial,                                                              
unexpected expense.                                                                                                             
                                                                                                                                
Number 1390                                                                                                                     
                                                                                                                                
REPRESENTATIVE JAMES  referred to a recent visit  by "the Close-up                                                              
students" who'd  met with her in  her office.  She  explained that                                                              
these are kids  who want to be  involved in government  and have a                                                              
say in  how the country  is run.  She  said the system  is flawed,                                                              
but it  is the most  perfect system that  exists and  gives people                                                              
the chance  to be involved.   She added,  "It is a  government 'of                                                              
the  people,  by  the  people,  for  the  people,'  and  it's  the                                                              
'people'  part that's  not working,  when  you can't  even get  50                                                              
percent  of the  people to  be informed  and  go to  the polls  to                                                              
vote."                                                                                                                          
                                                                                                                                
REPRESENTATIVE  JAMES noted  that  her staff  checks the  district                                                              
and party  of those who issue  a complaint, for example;  she said                                                              
it is  amazing how  many of  those people  aren't even  registered                                                              
[to vote].   She said  if the public  wants to  have a say  in the                                                              
government,  they need  to participate.   She  offered her  belief                                                              
that people  should pay  for some  of the  services they  want and                                                              
that "they  will be  more interested  in how  they are  affected."                                                              
She thanked  Representative Hudson  for bringing this  legislation                                                              
forward.                                                                                                                        
                                                                                                                                
CHAIR COGHILL  asked for a definition  of the word  "situs", found                                                              
on page 3, line 25 [SSHB 199].                                                                                                  
                                                                                                                                
REPRESENTATIVE JAMES defined "situs" as "where it's located."                                                                   
                                                                                                                                
Number 1289                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WILSON referred  to previous discussion  regarding                                                              
the deficit's  being so large  that "we can't  cut our way  out of                                                              
it, and  we can't tax  our way out  of it,  and we can't  grow our                                                              
way out  of it,  so we  have to  do a combination  of all  three."                                                              
She stated  that in  many areas  of [Alaska],  despite growth  and                                                              
employed people, the  pay for employees is less than  in the past;                                                              
therefore,  [the legislature] needs  to consider  how to  grow the                                                              
economy in ways that can afford people to make a living.                                                                        
                                                                                                                                
Number 1229                                                                                                                     
                                                                                                                                
CHAIR  COGHILL  mentioned  "the   move  for  the  Great  Society";                                                              
Medicaid  and Medicare;  and a  greater  and stronger  centralized                                                              
government in the 1960s.  He continued as follows:                                                                              
                                                                                                                                
     Many times,  we in  the state  have felt the  rebellion,                                                                   
     if you  will, of that  that has come  to us as  a state,                                                                   
     and we've  had to swallow  a lot of  things here  in the                                                                   
     state,  and -  myself  included -  kind  of resist  that                                                                   
     growth to  a stronger,  centralized and more  subsidized                                                                   
     world,  where we're  actually  changing  money from  one                                                                   
     group  of  people  to  another,  and  we're  doing  that                                                                   
     redistribution  that  has   such  a  socialist  kind  of                                                                   
     background to it.                                                                                                          
                                                                                                                                
     So many  of us  are so reluctant  to continue that  type                                                                   
     of  government  growth  that   when  we  come  to  these                                                                   
     discussions,  it's very painful for  us to just  wave it                                                                   
     off, even though  we know we have the need.   But how do                                                                   
     we  change the  form of  government  from going  further                                                                   
     down that  road, and  maybe recovering  back to a  free-                                                                   
     market economy  where we're balanced out  by competition                                                                   
     and the individual liberties?                                                                                              
                                                                                                                                
Number 1148                                                                                                                     
                                                                                                                                
REPRESENTATIVE  CRAWFORD mentioned  being affected  by stories  he                                                              
has heard  from people, most  of whom were  "at the  very bottom."                                                              
He related  one story of  a retired, widowed  lady who lives  in a                                                              
condominium close  to his own  home, who  told him the  income she                                                              
receives through  social security and  a longevity bonus  is spent                                                              
on rent, while  the money she receives  from the PFD is  [what she                                                              
has to  spend on  food].  He  mentioned [Representative  Hudson's]                                                              
"starting  this out  based just  on  adjusted gross  income."   He                                                              
said he  understood that  [Representative Hudson] wanted  everyone                                                              
to pay his/her  share, but said [this proposed  legislation] would                                                              
[affect] those people at the bottom.                                                                                            
                                                                                                                                
REPRESENTATIVE HUDSON  mentioned various  tax forms.   He surmised                                                              
that the  lady of  whom Representative  Crawford had spoken  would                                                              
use  tax Form  1040EZ.    He offered  his  belief  that there  are                                                              
liberal  exemptions for  social  security benefits,  and that  for                                                              
those who  only have  social security,  it is  often not  taxed at                                                              
all.    He indicated  he  has  to  pay  taxes on  his  own  social                                                              
security because of his legislative salary.                                                                                     
                                                                                                                                
REPRESENTATIVE  CRAWFORD related  a story of  a single  mother who                                                              
works at  Kmart stocking shelves for  just under $8 per  hour, who                                                              
has to struggle each  month to pay rent and buy  food; any type of                                                              
medical  bill is  [difficult  to pay].    He asked  Representative                                                              
Hudson how this [proposed legislation] would affect her.                                                                        
                                                                                                                                
REPRESENTATIVE  HUDSON answered  that he  did not  know.   He said                                                              
the  focus had  been  on  the wage  issues  and the  thought  that                                                              
everybody  should pay  "a very  small percentage."   He  explained                                                              
the reason  that he'd made the  change from 15 percent  of taxable                                                              
income or tax that  a person would pay to the  government, to 2.25                                                              
of a person's adjusted  gross income -  he'd thought  that was the                                                              
fairest place to  "begin your deduction from."   Referring back to                                                              
the  story  of  the  mother,  he   suggested  that  Representative                                                              
Crawford    could   certainly    contact    somebody   from    the                                                              
administration to satisfy his interest.                                                                                         
                                                                                                                                
REPRESENTATIVE HUDSON  said his concern is that  [the legislature]                                                              
does not  get "led down  that path" of  trying to find  "some sort                                                              
of special  exemption for  every type of  special exemption."   He                                                              
said there  has been concern  expressed regarding people  in rural                                                              
Alaska receiving  benefits without paying anything.   He said, "If                                                              
we  pass  this  bill,  every  dollar  that  they  receive  on  the                                                              
permanent fund  dividend, for  example, would  become part  of the                                                              
taxable  income amount  - if  it fits  into that  ... line on  the                                                              
federal income tax  return - and will become taxable  at that very                                                              
low rate."                                                                                                                      
                                                                                                                                
REPRESENTATIVE  CRAWFORD said  he would remember  that talk  [with                                                              
the woman] at her  doorstep for the rest of his  life, because she                                                              
was "at her  wits end."  He said  he didn't want to  put a greater                                                              
burden on her.                                                                                                                  
                                                                                                                                
REPRESENTATIVE  HUDSON urged  Representative Crawford  to look  at                                                              
that as  it applies to  the bill, and said  he would do  the same.                                                              
He  mentioned health  and social  services,  which is  one of  the                                                              
largest  costs to  the state  and covers  everything from  adults'                                                              
and  children's  medicine  and  foster homes,  for  example.    He                                                              
suggested the  need to "fill in  some of that [budget  gap] before                                                              
we run  out of  our savings account,  so ...  know, the  people at                                                              
the low end will  pay the least and receive the  most."  He added,                                                              
"I think that's just a fair assessment."                                                                                        
                                                                                                                                
Number 0802                                                                                                                     
                                                                                                                                
REPRESENTATIVE  JAMES,  regarding the  PFD,  said  it didn't  make                                                              
sense to  her to  give with  one hand  and take  it away with  the                                                              
other.   She emphasized  that she  has absolutely  no interest  in                                                              
making the  PFD a  welfare program;  consequently, she  stated her                                                              
belief that everyone  who qualifies should get  the same [amount].                                                              
She  opined  that it  would  be  simple to  reduce  the  PFD by  1                                                              
percent,  "if that's  what  we wanted  to  do,  and we're  already                                                              
there, and  that person doesn't even  have to file a  tax return."                                                              
She  recommended  considering the  simplicity  of  this issue,  if                                                              
"we" really  want to  get money  and then  take it from  everyone,                                                              
"and just not make them have to file, if they don't have to."                                                                   
                                                                                                                                
Number 0720                                                                                                                     
                                                                                                                                
CHAIR COGHILL said,  "And the cost would be either  between $3 and                                                              
$13 million dollars less."                                                                                                      
                                                                                                                                
Number 0689                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HAYES  pointed out  the  need to  discuss  another                                                              
issue:   that  the  legislature  only  controls one-third  of  the                                                              
budget - the  $2.3 billion or so  in the [general fund]  - whereas                                                              
approximately  $2.1 [billion]  comes from  the federal  government                                                              
and $1.7  [billion in the permanent  fund] is given away,  "and we                                                              
do an inflation proofing [of] the permanent fund."                                                                              
                                                                                                                                
Number 0572                                                                                                                     
                                                                                                                                
CHAIR  COGHILL  mentioned  "federal  strata"  of  income,  federal                                                              
employees,  the [U.S.] Department  of Defense,  and the  Bureau of                                                              
Land  Management that  owns and  operates at  least two-thirds  of                                                              
the  land in  Alaska.   He  said  certainly the  Tongass  National                                                              
Forest  has  been out  of  "our"  control.    He noted  that  he'd                                                              
recently  heard that  10  percent  of the  state  land is  beetle-                                                              
infested forest.   He said "we" have some significant  issues, and                                                              
he agreed with Representative  Hayes that this all  has to be part                                                              
of the discussion.                                                                                                              
                                                                                                                                
Number 0478                                                                                                                     
                                                                                                                                
NEIL  SLOTNICK, Deputy  Commissioner, Office  of the  Commissioner                                                              
Department of Revenue,  noted that Mr. Harlamert  was also present                                                              
and  that [online  was] Mike  Williams,  a revenue  auditor.   Mr.                                                              
Slotnick  thanked  the  committee   for  having  this  discussion.                                                              
Having  an unbalanced  budget  is an  unstable  situation for  the                                                              
economy of Alaska,  he said.  An unbalanced budget  is a deterrent                                                              
to investment,  because it  may be  that the  state would  have to                                                              
"balance the budget on the backs of business."                                                                                  
                                                                                                                                
MR. SLOTNICK  told  the committee  that he had  testified  the day                                                              
before against  a gross-receipts tax.   He explained that  he does                                                              
not like  to testify  against any  revenue measure; however,  [the                                                              
department]  did  not  think that  was  a  business-friendly  tax.                                                              
[The department],  he said, believes  a broad-based tax  is needed                                                              
to go forward and balance the budget.                                                                                           
                                                                                                                                
MR.  SLOTNICK  referred to  a  chart  prepared by  Mr.  Harlamert,                                                              
which  summarizes   some  of  the  differences   and  similarities                                                              
between the  three proposed  income tax bills.   [The  three bills                                                              
compared  on the chart  are:   HB 413,  the governor's  bill; SSHB
199,  Representative  Hudson's  bill; and  HB  10,  Representative                                                              
Moses' bill.]   Pointing to the first [attribute],  "Tax Base," he                                                              
said,   "The  tax   base   for  the   governor's   bill  and   for                                                              
Representative  Moses' bill  is 'federal  tax liability,'  whereas                                                              
Representative Hudson  has proposed that  we use as the  tax base,                                                              
'adjusted gross income.'"                                                                                                       
                                                                                                                                
MR. SLOTNICK  noted a third possibility  on [Form] 1040,  which is                                                              
"taxable  income,"  found on  line  39.   The  difference is  that                                                              
taxable income  includes the  exemptions and  the deductions.   He                                                              
indicated exemptions  are for oneself and one's  dependents.  With                                                              
adjusted  gross  income, he  noted,  "the  wage earners  who  have                                                              
dependents - whether  it's children or elderly  dependants - there                                                              
is no exemption provided for that."  He continued:                                                                              
                                                                                                                                
     Now,   when   we  go   to   the  governor's   bill   and                                                                   
     Representative  Moses'  bill,  I've  said, ...  the  tax                                                                   
     base  there  is  federal  tax  liability.    But  it  is                                                                   
     actually not  clear to  us, as we  read HB 10,  ... what                                                                   
     the tax  base really is,  because federal tax  liability                                                                   
     -- first  you figure out your  tax from the  tax tables;                                                                   
     is that  federal tax  liability?   After you've  figured                                                                   
     your  federal tax,  then you  look and  see whether  you                                                                   
     get any  credit to  apply against  that tax, before  you                                                                   
     end up writing your check or requesting your refund.                                                                       
                                                                                                                                
     Now,  I believe  Tim [Benintendi,  in earlier  testimony                                                                   
     that  day on HB  10] said  he interpreted  ... HB  10 to                                                                   
     apply to  the amount that you  owe, which would  be line                                                                   
     70 here  on your ...  [Form] 1040.   I don't think  that                                                                   
     can be  right, because  that's after withholding  amount                                                                   
     that you owe, when you go all the way down there.                                                                          
                                                                                                                                
     So,  what the  governor's bill  does, is  it takes  line                                                                   
     52, which  is, "You  can go to  the tax tables,  compute                                                                   
     your tax,  then subtract any  credits that you  may have                                                                   
     -  and this  would  be credits  for  things  like ...  a                                                                   
     childcare credit,  which is a credit that's  designed to                                                                   
     encourage  people to  enter the workforce  and not  have                                                                   
     to  absorb  all  of  the cost  of  childcare.    There's                                                                   
     various  other   credits,  including  certain   business                                                                   
     credits that  are included within that.  That's  line 52                                                                   
     -  tax  after credits.    And  so  that's what  we  call                                                                   
     federal tax  liability.  It's not  clear to me if  HB 10                                                                   
     goes to  line 52, or if it  just goes to line  39, which                                                                   
     is taxable income.                                                                                                         
                                                                                                                                
     But that helps  focus, I think, for this  committee, the                                                                   
     policy  decisions that you  are going  to have to  make.                                                                   
     Do you  go to  AGI [adjusted gross  income] - and  we've                                                                   
     heard arguments  from ... Representative James  and from                                                                   
     Representative  Hudson as to why  AGI has ...  has some,                                                                   
     I believe,  ... compelling  arguments in favor  of that.                                                                   
     It is the simplest and perhaps the broadest.                                                                               
                                                                                                                                
     But  we've heard  from  Representative  Crawford why  it                                                                   
     would be ...  what I would call "more  encouraging, more                                                                   
     friendly  to the  people entering  the  workforce or  in                                                                   
     the margins of  the workforce" - a tax base  that's more                                                                   
     friendly  towards those  people  at the  edges.   And  I                                                                   
     would submit  to you that line  52 is the  most friendly                                                                   
     to those who are trying to enter the workforce.                                                                            
                                                                                                                                
     You  could also  look,  however,  at line  39,  "taxable                                                                   
     income."                                                                                                                   
                                                                                                                                
Number 0043                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WILSON noted that  for people  who don't  do their                                                              
own taxes,  this information  could be confusing.   She  asked Mr.                                                              
Slotnick if  he could  provide examples, such  as a  single mother                                                              
or a family of four.                                                                                                            
                                                                                                                                
MR. SLOTNICK  said  he thought he  could provide  the examples  by                                                              
Tuesday [February 19].                                                                                                          
                                                                                                                                
TAPE 02-11, SIDE A                                                                                                              
Number 0001                                                                                                                     
                                                                                                                                
CHAIR COGHILL  urged members to  keep the conversation  focused so                                                              
that  when  considering all  three  [tax  bills], they  will  have                                                              
before  them all  the best  information regarding  the heading  of                                                              
"income tax."                                                                                                                   
                                                                                                                                
MR. SLOTNICK  said  that information  could be  made ready  by Mr.                                                              
Williams.   He also noted  that Mr. Persily [Deputy  Commissioner]                                                              
would be present at the Tuesday [February 19] hearing.                                                                          
                                                                                                                                
MR. SLOTNICK  moved on to the  attribute entitled "Tax  rate."  He                                                              
continued as follows:                                                                                                           
                                                                                                                                
     One of  the big questions  in rate  is, "Do you  want to                                                                   
     graduate a rate,  or do you want a flat tax?"   Now, ...                                                                   
     the  governor's  proposal   ...  takes  a  flat  tax  on                                                                   
     federal tax  liability, and that picks up  the graduated                                                                   
     rates  that are within  the federal  system.   Graduated                                                                   
     tax  rates  are very  common.    Most states  that  have                                                                   
     income taxes have graduated rates.                                                                                         
                                                                                                                                
     Certainly, we're  all familiar with the  federal system.                                                                   
     And  the  way  it  works,  I  think,  as  Representative                                                                   
     Crawford  pointed  out,  is  that  for  everybody,  your                                                                   
     initial  income  -  first  ... $7,000  -  would  not  be                                                                   
     subject  [to]  tax.   And  then  your next  ...  dollars                                                                   
     earned  would  be subject  to  the lowest  tax  bracket,                                                                   
     which used  to be  15 percent, and  it's ... going  down                                                                   
     now.    And  then  your  next,  again,  incremental  ...                                                                   
     graduations, so  that there's no ... penalty  for moving                                                                   
     into the next bracket.                                                                                                     
                                                                                                                                
     And,  again,   Representative  James  has   argued  very                                                                   
     eloquently  what she sees  as the  advantages of  a flat                                                                   
     tax. ...  But I would want  to just put on the  record -                                                                   
     and I think  that Representative Crawford  has expressed                                                                   
     it - that  the advantage of the graduated  rates is that                                                                   
     those who are  in the higher brackets are  earning more.                                                                   
     They're able  to take more  advantage of the  advantages                                                                   
     of civilized  society in which  we are all able  to live                                                                   
     and  work,  and  they  are  left  with  more  disposable                                                                   
     income, even  after the effects  of the graduated  rate,                                                                   
     which  now, with  the federal  rates as  they are -  and                                                                   
     we're  just  piggybacking on  the  federal rates  -  the                                                                   
     graduations  are  not  nearly  what  they  used  to  be,                                                                   
     either  with the federal  rates or  with the old  Alaska                                                                   
     law that we repealed.                                                                                                      
                                                                                                                                
Number 0235                                                                                                                     
                                                                                                                                
CHAIR  COGHILL mentioned  the complexity  of the  federal law  and                                                              
changing  the  complexity  of  the   state  law.    He  asked  Mr.                                                              
Slotnick, "Do you sidestep that discussion?"                                                                                    
                                                                                                                                
MR. SLOTNICK  answered yes.  He  indicated an assumption  that the                                                              
policy behind  the federal tax  changes are, in  general, "adopted                                                              
here."  For  example, he stated  that in the future there  will be                                                              
an  additional  child  tax  credit,   which  "we"  would  [adopt];                                                              
however, he said  if there were policy changes in  the future that                                                              
legislators don't want, then amendments can be made.                                                                            
                                                                                                                                
Number 0300                                                                                                                     
                                                                                                                                
REPRESENTATIVE  FATE asked  Mr. Slotnick  for data regarding  "the                                                              
ratio  of  discretionary  income  to  gross  income"  and  whether                                                              
people with low income have less discretionary income."                                                                         
                                                                                                                                
MR.  SLOTNICK  replied  that  he  would try  to  "work  that  up";                                                              
however, that  is a broad policy,  more of a  "common-sense notion                                                              
that we have there."                                                                                                            
                                                                                                                                
REPRESENTATIVE  FATE responded,  "Regardless, whether  it's common                                                              
sense or  not, I  know people  with high  incomes that  have very,                                                              
very  little discretionary  income,  and people  with low  incomes                                                              
that have  a lot  of discretionary  income.  I  would like  to see                                                              
some data on it - that's all I'm requesting."                                                                                   
                                                                                                                                
MR. SLOTNICK  responded that he  would try to fill  Representative                                                              
Fate's  request; however,  he said  he had  never seen  statistics                                                              
published on discretionary income.                                                                                              
                                                                                                                                
Number 0380                                                                                                                     
                                                                                                                                
REPRESENTATIVE HAYES  stated his appreciation of the  work done by                                                              
[Mr. Slotnick's  department] regarding  this issue.   He mentioned                                                              
property  owners who  pay property  taxes for  education in  their                                                              
communities.   He  asked, "Have  you all  thought about  including                                                              
some type  of credit,  as in Representative  Moses' bill,  and how                                                              
much money would you actually lose by doing that?"                                                                              
                                                                                                                                
MR.  SLOTNICK  answered  that  the  question  had  been  discussed                                                              
previously.   He  said that  is one  advantage of  [adopting as  a                                                              
basis] the  federal tax  liability, because  there is  a deduction                                                              
for state  taxes paid  when computing  the federal tax  liability.                                                              
One reason  that a  property tax credit  - such as  Representative                                                              
Moses  included in  [HB 10]  - was  not  chosen is  that there  is                                                              
"some  double counting  when you  add up  credit on  top of  taxes                                                              
[that] have already been deducted," he added.  He continued:                                                                    
                                                                                                                                
     I  know when I  was a  renter, when  the local  property                                                                   
     taxes  here in  Juneau went  up, my rent  bill went  up.                                                                   
     So that  really, if you're  renter, you are  paying what                                                                   
     I  might call  "an  imputative  property tax,"  and  yet                                                                   
     that  person isn't  going to  get to  take advantage  of                                                                   
     the credit,  or even the deduction.   So, in  some ways,                                                                   
     ... we  believe that having  a one-for-one property  tax                                                                   
     credit  is unfair  to  that  portion of  the  population                                                                   
     that isn't a homeowner.                                                                                                    
                                                                                                                                
     The  final reason  that we  did not go  with a  property                                                                   
     tax  credit is  that the  Department  of Law  questioned                                                                   
     the  constitutionality   of  allowing  a   property  tax                                                                   
     credit only for  property tax paid in the  state.  There                                                                   
     is a  line of  cases that  is very  clear in taxation  -                                                                   
     that  you  cannot  discriminate   against  nonresidents.                                                                   
     And  the   federal  courts   are  very  vigilant   about                                                                   
     enforcing  discrimination  problems  that  they  see  in                                                                   
     state taxes.                                                                                                               
                                                                                                                                
     Now,  I  don't know  that  the  Department of  Law  ever                                                                   
     reached  a conclusion  on that analysis.   The  question                                                                   
     was raised.   It was a significant enough  question that                                                                   
     we chose not to go there in our analysis.                                                                                  
                                                                                                                                
Number 0549                                                                                                                     
                                                                                                                                
MR.   SLOTNICK   referred  to   Representative   Hayes'   question                                                              
regarding how much  the property tax credit costs the  state.  Mr.                                                              
Slotnick said  that number is  in the fiscal  note for HB  10; the                                                              
revenue  raised by  HB 10 is  on the  last page  of the  analysis.                                                              
[Mr. Slotnick  was searching for  the exact information as  he was                                                              
talking.]  He said, "I can get back to you on that."                                                                            
                                                                                                                                
CHAIR COGHILL  said he'd been  looking more towards  a comparison,                                                              
rather  than delving  into [Representative  Moses' bill],  because                                                              
Representative  Moses would be  given [time  to present  his bill]                                                              
in the following  week.  Chair Coghill mentioned  an adjusted rate                                                              
based  on "some  of  our accounts"  that  was  different in  "your                                                              
bill" than  in any  other.  He  said it  was a fundamental  issue.                                                              
He  also mentioned  a "trigger  mechanism" he  has been  intrigued                                                              
with,  and figuring  a tax-base  rate based  on "where  are we  at                                                              
with some  of our larger accounts,  like the CBR and  the earnings                                                              
reserve."                                                                                                                       
                                                                                                                                
Number 0670                                                                                                                     
                                                                                                                                
MR. SLOTNICK addressed that as follows:                                                                                         
                                                                                                                                
     What we've  done in  the governor's  bill is, we've  put                                                                   
     in a  trigger based  on the  size of the  Constitutional                                                                   
     Budget Reserve.   ... At  the Department of  Revenue, we                                                                   
     recommend  that we  ... not  let the  budget reserve  go                                                                   
     below $1.5  billion.  We think  we need that  much money                                                                   
     in there  to act  as a shock  absorber, [in case]  there                                                                   
     is a  sudden plunge  in the price  of oil, because  even                                                                   
     if we have  a broad-based tax such as this,  and even if                                                                   
     we  have  other  tax revenues  to  balance  the  budget,                                                                   
     we're still,  even in the future, going to  be dependent                                                                   
     upon  oil  revenue  -  a  very  important  part  of  the                                                                   
     state's budget.                                                                                                            
                                                                                                                                
MR. SLOTNICK reiterated  that the CBR acts as  the shock absorber,                                                              
which he  believes is part  of the reason  the voters  enacted it.                                                              
He said [the  department] highly recommends that the  CBR stays at                                                              
$1.5  billion;  once it  begins  to  climb  above that,  some  tax                                                              
relief  can be  provided to  Alaskans.   To provide  a buffer,  he                                                              
explained, the  "trigger" was  put in the  bill at $2  billion, at                                                              
which point  the tax rate "on the  citizens" could be  cut down to                                                              
10  percent.    Furthermore,  if  [the  CBR]  reaches  above  $2.5                                                              
billion, the  tax would be  lowered to  5 percent, he  said, which                                                              
is "something to  hold the tax in place, rather than  just do away                                                              
with it."   He explained that  [the department] would not  want to                                                              
be in the position  of laying off employees one year  when the tax                                                              
is abolished  and then having  to rehire  them the next  year, for                                                              
example.                                                                                                                        
                                                                                                                                
Number 0772                                                                                                                     
                                                                                                                                
REPRESENTATIVE JAMES  said there is  a payback requirement  on the                                                              
CBR.    She  asked  how  Mr.  Slotnick  can  support  the  CBR  as                                                              
currently  drafted and  not "pay  it back  up to  ... the  payback                                                              
before you stop taxes."                                                                                                         
                                                                                                                                
MR.  SLOTNICK  responded  that   he  didn't  believe  the  payback                                                              
provision  was an  imperative  demanding that  the  state tax  its                                                              
citizens such  that it get back  to the $6 billion figure  that is                                                              
owed to the CBR fund.                                                                                                           
                                                                                                                                
REPRESENTATIVE  JAMES said,  "That's what  I voted  for.   I mean,                                                              
were you  out there  voting for the  CBR?  What  did you  think it                                                              
did?"   She said  [the CBR] "does  things that  I didn't  think it                                                              
did,"  but  explained   what  she  thought  one   of  [the  CBR's]                                                              
functions was as follows:                                                                                                       
                                                                                                                                
     This was  a fund that  was going to  be coming  from the                                                                   
     windfalls,  sort of.    They would  identify  windfalls,                                                                   
     which  to me weren't  really truly  windfalls, but  what                                                                   
     they  were is  "bump-ups" in  the budget,  so we  didn't                                                                   
     spend too  much:  "Let's  cap that  off and put  this in                                                                   
     here,  and we can  utilize that  when we  need to.   And                                                                   
     then when we have the money we have to pay it back."                                                                       
                                                                                                                                
REPRESENTATIVE JAMES  said the "paying back" was  a very important                                                              
part  of keeping  the  pot of  money, when  she'd  voted for  [the                                                              
CBR].  She added her belief that many people felt the same way.                                                                 
                                                                                                                                
MR.  SLOTNICK  described  an example  of  a  circumstance  whereby                                                              
[Alaska] had  a gas line and,  as a consequence,  surplus revenue.                                                              
That, he said,  is when the CBR  fund would be paid  back and when                                                              
it  would grow.    He said  he  did not  want  to  do anything  to                                                              
inhibit  that  growth of  the  CBR  back  to its  "full  payback."                                                              
However,  Mr. Slotnick reiterated,  he didn't  think it  necessary                                                              
to tax the  citizens at the  highest rate "we could  stand" solely                                                              
to replenish  the CBR to  an amount higher  than necessary  to act                                                              
as a shock absorber,  although a certain minimum  amount is needed                                                              
as a  shock absorber to  avoid the type  of sudden fallout  in the                                                              
economy seen in 1986 when oil prices plummeted.                                                                                 
                                                                                                                                
Number 0910                                                                                                                     
                                                                                                                                
REPRESENTATIVE  FATE clarified  for  any listening  public that  a                                                              
gas pipeline would  not put the same kind of money  into the state                                                              
coffers that the oil pipeline did.                                                                                              
                                                                                                                                
Number 0955                                                                                                                     
                                                                                                                                
REPRESENTATIVE  JAMES suggested  the  real benefit  of having  the                                                              
gas line  [would be] to have  more high-paying jobs and  the other                                                              
kinds  of  industry  that  it  might   support,  not  the  revenue                                                              
received at the state level from "the taxes on the oil company."                                                                
                                                                                                                                
CHAIR  COGHILL  noted that  one  of  the policy  discussions  that                                                              
would be  heard when  the governor presents  his bill  regards the                                                              
difference between  the base rates  - "how we attach  ourselves to                                                              
the federal  government," whether by  flat tax, graduated  tax, or                                                              
a  combination.     He  indicated  there  may   be  discussion  on                                                              
exemptions.   He  added that  if  the discussion  did not  happen,                                                              
then  exemptions  would  become  a moot  point,  except  that  the                                                              
committee  would be  talking  about the  cost-of-living  allowance                                                              
(COLA),  for  example.    He  expressed  interest  in  "the  trust                                                              
doctrine discussion."                                                                                                           
                                                                                                                                
CHAIR COGHILL said  he thinks although the House  Finance Standing                                                              
Committee is better  equipped to deal with the  expected revenues,                                                              
the  [House  State  Affairs  Committee]   should  set  parameters,                                                              
perhaps by stating its expectations of the administration.                                                                      
                                                                                                                                
Number 1052                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HUDSON  requested   that  the  committee  ask  the                                                              
department to  consider - on all  three "approaches" -  the amount                                                              
of money that  would not be flowing  to Washington, D.C.   He made                                                              
note  that the  governor, in  his  State of  the State  [address],                                                              
said  that "if  we impose  this tax,  $50 million  that people  of                                                              
Alaska now pay to  the federal government would stay  in the State                                                              
of Alaska."  He  added, "And I think each one  of these mechanisms                                                              
would have some relevance there, and I would appreciate that."                                                                  
                                                                                                                                
CHAIR COGHILL  said that  was a good  point which he  appreciated.                                                              
He asked  Mr. Slotnick if [the  committee] could expect  that from                                                              
him.                                                                                                                            
                                                                                                                                
MR. SLOTNICK answered yes.                                                                                                      
                                                                                                                                
Number 1128                                                                                                                     
                                                                                                                                
REPRESENTATIVE  STEVENS referred  to the  aforementioned issue  of                                                              
whether it is legal  to give a benefit for property  taxes paid in                                                              
the state and  not those paid out  of the state.  He  said that is                                                              
a legal question that he would like to know more about.                                                                         
                                                                                                                                
Number 1149                                                                                                                     
                                                                                                                                
REPRESENTATIVE  JAMES said her  understanding and her  perspective                                                              
were  to "only give  a credit  on the  education."   She said  she                                                              
believed  that  could  be  called  a  "school  tax,"  paid  either                                                              
through  property tax  or income  tax.   She added,  "It could  be                                                              
even  identified to  be the  $100  that I  hear all  of the  state                                                              
people proposing  to do."  Representative James  suggested $100 of                                                              
"that bottom  line" could be  assigned as a  school tax to  give a                                                              
refund for those  people who, "in their personal  residence, pay a                                                              
property  tax that is  allocated to  schools."   She said  she did                                                              
not see anything unconstitutional about that.                                                                                   
                                                                                                                                
REPRESENTATIVE  STEVENS  remarked  that  he'd  appreciate  further                                                              
discussion of that issue, from a legal standpoint.                                                                              
                                                                                                                                
CHAIR COGHILL  commented that he  would be interested to  find out                                                              
how an exemption  might be provided  for those who "pay  their own                                                              
schooling at home."  [SSHB 199 was held over.]                                                                                  

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