Legislature(2005 - 2006)
04/15/2005 08:36 AM House W&M
| Audio | Topic |
|---|---|
| Start | |
| HB262 | |
| HB263 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 263-EMPLOYMENT TAX 9:24:31 AM CHAIR WEYHRAUCH announced that the final order of business would be HOUSE BILL NO. 263, "An Act imposing a tax on employment; and providing for an effective date." CHAIR WEYHRAUCH explained that this legislation reinstates the 1980 education tax which deducted $10 annually from the payroll of employees 19 years old or older. The monies would be placed into a fund that would be held separately for education. He opined that $10 per person is a small amount of money, and furthermore it illustrates that people value education. Essentially, this is an income tax for the employed. He highlighted that currently a $40 payment is imposed on those in rural education attendance areas (REAAs) and this legislation exempts them from paying the additional $10 education tax proposed in HB 263. 9:27:42 AM CHUCK HARLAMERT, Juneau Section Chief, Tax Division, Department of Revenue, agreed that the proposed tax is relatively small and broad-based and thus it's a relatively inefficient tax in that the state will spend a lot to collect a little. From an enforcement point of view, there is the need to prevent fraudulent refund claims. He acknowledged that employees are likely to have more than one job during the year and thus may have this withheld twice, which necessitates having a refund program. Therefore, the choice becomes whether to track payments by individuals on an individual basis in order to ensure a refund claim is true. The division has evaluated this before and determined that at the $100 level, such tracking is economically justified, although it may not be justified at the $10 level. Mr. Harlamert also commented that it's difficult to justify what would be normal decisions regarding the quality of the program with a tax at this level. CHAIR WEYHRAUCH asked if the $750,000 in capital expenditures listed on the fiscal note is a one-time capital expenditure. MR. HARLAMERT answered that the aforementioned capital expenditure would be over the first two-three years of the tax. The operating expenditures usually include maintenance costs for systems. The $750,000 is intended to generate a system that efficiently captures employee data that allows the division to validate refunds. In further response to Chair Weyhrauch, Mr. Harlamert confirmed that after the $750,000 is paid out, the program would require $1.1 million in annual operating costs. He also confirmed that the estimated revenue generated from this tax in the second year would be $3.8 million. 9:31:44 AM REPRESENTATIVE SAMUELS asked if the permanent fund dividend (PFD) is included in the definition of "compensation." 9:31:56 AM MICHAEL WILLIAMS, Auditor, Tax Division, Department of Revenue, clarified that the PFD wouldn't be considered income under the provisions of HB 263. The forms of compensation that are being reviewed typically include wages, salaries, bonuses, tips, or income from self-employment. With regard to the overall program, the fiscal note views this program as a stand-alone program. He explained that if HB 263 were passed at the proposed lower level in conjunction with a broad-based income tax, the additional costs wouldn't likely be incurred because it could be included in the overall administration of the broad- based income tax. He agreed with Mr. Harlamert that the lower the tax, the less efficient the tax becomes in terms of revenues and costs. Generally, an efficient tax is one in which a program operates at under 5 percent of the cost of revenue generated. At the $10 tax level, the program is operating at roughly 33 percent cost to revenue level. 9:34:13 AM CHAIR WEYHRAUCH inquired as to the amount the tax would have to be in order to be minimally efficient. MR. WILLIAMS answered that when the tax is $100 it brings in about $38 million a year, which results in a cost of roughly 3 percent of the total revenue. He submitted that at the $100 level it would be a more efficient tax system. 9:35:27 AM REPRESENTATIVE SEATON asked if the division would envision sending back to the employer a card specifying that an employee with multiple employers could [prove] that he or she has already paid the tax. MR. HARLAMERT answered that ideally the division would desire collecting as much of the tax as can be withheld and condensed at the employer level with as few refunds as possible. In order to strike that balance, the division would want to hold employers responsible for withholding, as far as practically possible. However, the division would provide a way in which to administer the program on [the state's] behalf. Therefore, the division would envision that the employee would need to show the employer a pay stub that evidences the withholding from a prior employer. REPRESENTATIVE SEATON surmised then that the pay stub would include a line item denoting the education tax deduction rather than utilizing a web-based system by which the employer could access, by using the employee's social security number, whether the employee has paid the tax that year. MR. HARLAMERT acknowledged that one choice could be to capture and manage such detailed information on an employee every withholding period. The other choice could be to do something similar to what the Internal Revenue Service (IRS) does with W- 2s and wage withholding such that summary information is collected at the end of the year for all the employer's withholding by individuals for the year. The aforementioned is cheaper, but doesn't allow real-time information on-line during the year. Therefore, Mr. Harlamert said that it's a matter of how much the state wants to pay for the service because once the data is obtained it's not expensive [to manage it]. 9:39:20 AM LARRY MESHKIN stated his opposition to the employment tax because in principle it's just like an income tax. Mr. Meshkin related the following quote from Robert Nosik (ph): "Taxation of earnings from labor is on a par with forced labor." He also offered quotes along the same sentiment from Walter Williams (ph) and Allen Keys (ph). Mr. Meshkin then opined that a flat sales tax, when it's necessary, is the way to go because everyone would share in paying for state services. Furthermore, when everyone's involved, he opined that there will be more efficiency with the use of state services. 9:41:27 AM ART CURTIS, Co-Chair, Alaskans for Fair Taxes, said that taxation is the price everyone pays for living in a civilized society. However, he expressed concern with regard to the employment tax because if it's too small, it's hardly profitable to collect it, but if it's large, it's very regressive. 9:43:11 AM REPRESENTATIVE SEATON commented that the employment tax would make more sense if it was a minimum within a generalized income tax. He recalled that Representative Wilson's income tax proposal last year incorporated a minimum amount of the tax going into the education trust, which seemed to make sense. As a stand-alone tax, Representative Seaton expressed concern with regard to its [lack] of efficiency. 9:44:50 AM REPRESENTATIVE WILSON clarified that her proposed legislation last year incorporated a $100 [education tax]. She indicated that her proposal took into account the fact that many people don't pay anything, although they receive a lot of services from the state. Therefore, under her proposal everyone paid something and the thought was that everyone received a PFD and thus could afford to [pay] $100. 9:45:35 AM REPRESENTATIVE SEATON pointed out that Representative Wilson's legislation included the PFD as income, and therefore one could check a box on the PFD for the tax to be taken from it. However, this legislation doesn't include the PFD as income. 9:46:02 AM REPRESENTATIVE GRUENBERG asked if the PFD was in place when the proposal encompassed in HB 263 was originally instituted. CHAIR WEYHRAUCH replied no, and added that the income tax of the time was repealed at about the same time [as the education tax]. REPRESENTATIVE GRUENBERG pointed out that the only folks who would pay this proposed tax would be employed individuals while those with passive income escape.
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