Legislature(2015 - 2016)BILL RAY CENTER 208

06/02/2016 03:00 PM House FINANCE

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03:03:26 PM Start
03:04:11 PM HB4003
03:27:06 PM HB4005
03:36:46 PM HB4006
03:45:33 PM HB4004
04:49:13 PM Recessed to a Call of the Chair
04:49:17 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 4003(FIN) Out of Committee
Moved CSHB 4005(FIN) Out of Committee
Moved CSHB 4006(FIN) Out of Committee
                  HOUSE FINANCE COMMITTEE                                                                                       
                  FOURTH SPECIAL SESSION                                                                                        
                       June 2, 2016                                                                                             
                         3:03 p.m.                                                                                              
3:03:26 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Thompson called the House Finance Committee                                                                            
meeting to order at 3:03 p.m.                                                                                                   
MEMBERS PRESENT                                                                                                               
Representative Mark Neuman, Co-Chair                                                                                            
Representative Steve Thompson, Co-Chair                                                                                         
Representative Dan Saddler, Vice-Chair                                                                                          
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative Lynn Gattis                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Lance Pruitt                                                                                                     
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Randall Hoffbeck,  Commissioner, Department of  Revenue; Ken                                                                    
Alper,  Director,  Tax   Division,  Department  of  Revenue;                                                                    
Representative  Louise  Stutes;   Representative  Sam  Kito;                                                                    
Representative  Liz Vasquez;  Lora Reinbold;  Representative                                                                    
Andy Josephson; Representative Gabrielle LeDoux.                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
Brandon S. Spanos, Deputy Director, Tax Division,                                                                               
Department of Revenue.                                                                                                          
HB 4003   MOTOR FUEL TAX                                                                                                        
          CSHB 4003(FIN) was REPORTED  out of committee with                                                                    
          "no  recommendation" and  with  one fiscal  impact                                                                    
          note from the Department of Revenue.                                                                                  
HB 4004   INDIVIDUAL INCOME TAX                                                                                                 
          HB  4004  was  HEARD  and HELD  in  committee  for                                                                    
          further consideration.                                                                                                
HB 4005   MINING: LICENSE,TAX, FEES; EXPLOR. CREDIT                                                                             
          There being  NO further OBJECTION,  CSHB 4005(FIN)                                                                    
          was   REPORTED   out   of   committee   with   "no                                                                    
          recommendation"  and with  one fiscal  impact note                                                                    
          from the Department of Revenue.                                                                                       
HB 4006   FISHERIES: TAXES; PERMITS                                                                                             
          There being  NO further OBJECTION,  CSHB 4006(FIN)                                                                    
          was  REPORTED out  of  committee  with an  "amend"                                                                    
          recommendation  and with  one  fiscal impact  note                                                                    
          from the Department of Revenue.                                                                                       
Co-Chair Thompson discussed the meeting agenda.                                                                                 
HOUSE BILL NO. 4003                                                                                                           
     "An Act relating to the motor fuel tax; and providing                                                                      
     for an effective date."                                                                                                    
3:04:11 PM                                                                                                                    
Representative Gara took issue with  the order of the bills.                                                                    
He thought industry should pay before taxing individuals.                                                                       
Representative Wilson  stated that industry paid  for all of                                                                    
the taxes,  including gasoline. She  was concerned  that the                                                                    
committee did  not have all  of the information and  did not                                                                    
know what impact  it would have on the  economy. She thought                                                                    
it was important to ensure  that as many areas of government                                                                    
as possible were self-sufficient.                                                                                               
Representative Kawasaki had concerns  over the bill for many                                                                    
of the same reasons  Representative Wilson had mentioned. He                                                                    
referred to the subject of  jet fuel, which had been brought                                                                    
up in  a previous meeting  and had inspired him  to research                                                                    
negotiated  prices in  the United  States. He  thought there                                                                    
should  have   been  a  cost   analysis  completed   by  the                                                                    
department prior to  the introduction of the  bill. He spoke                                                                    
to gas  prices in  the Northwest region  of the  country. He                                                                    
did  not know  if the  taxes were  punitive and  would drive                                                                    
away business. He thought more  analysis on economic impacts                                                                    
was   warranted.  He   agreed  with   Representative  Gara's                                                                    
comments.  He spoke  to  the  tax system  in  the state.  He                                                                    
thought the  oil and gas  tax system needed to  be addressed                                                                    
before looking at taxes on individual citizens.                                                                                 
3:07:53 PM                                                                                                                    
Co-Chair Neuman  expressed his concerns  about the  bill. He                                                                    
stated that  35,000 Alaskans drove a  100-mile daily commute                                                                    
to Anchorage  from Mat-Su.  He discussed  the danger  of the                                                                    
highway  and the  needed  repairs. He  was  unsure that  the                                                                    
committee was prepared  with the right data.  He stated that                                                                    
people in  the Mat-Su tended  to drive larger  vehicles, and                                                                    
used more  fuel than other  areas of the state  with shorter                                                                    
commutes and less hazardous roads.                                                                                              
Co-Chair Thompson noted representatives in the room.                                                                            
Representative Gattis believed the  bills represented a huge                                                                    
change in the  way the state was doing  business. She echoed                                                                    
the comments of Representative Wilson.                                                                                          
Vice-Chair Saddler discussed his  constituents living on the                                                                    
Glenn  Highway corridor.  He discussed  the need  for decent                                                                    
roads  and affordable  fuels. He  discussed fuel  prices. He                                                                    
stated  that he  would  support advancing  the  bill to  the                                                                    
3:11:47 PM                                                                                                                    
Representative  Pruitt  thought   valid  concerns  had  been                                                                    
addressed  pertaining  to  the   bills  on  the  agenda.  He                                                                    
associated  his comments  with Representative  Gattis' prior                                                                    
statements. He remarked that if  the bills did not leave the                                                                    
committee the governor would keep  calling them back, and he                                                                    
would  vote to  pass the  bills from  committee to  save the                                                                    
state money. He  did not support the bills,  and thought the                                                                    
committee process was being usurped.                                                                                            
Representative  Gara  recalled that  in  the  past few  days                                                                    
there had been significant  criticism of the administration.                                                                    
He did  not see what  the administration had done  wrong. He                                                                    
spoke to the  state's $3.2 billion to  $3.7 billion deficit.                                                                    
He gave  the governor  credit for  putting together  a plan,                                                                    
and  thought criticism  of the  governor's  office had  been                                                                    
Representative  Gara opined  that  there were  many ways  to                                                                    
close  the fiscal  gap. He  believed  the gap  needed to  be                                                                    
closed in  a way that was  fair to all residents  across the                                                                    
state.  He did  not  see individuals  and corporations  with                                                                    
great privilege contributing  in a way that  was notable. He                                                                    
understood the  need to raise  funds, but wanted  the burden                                                                    
to be shared. He mentioned a corporate tax with exemptions.                                                                     
Co-Chair  Thompson noted  that Representative  Josephson and                                                                    
Representative Reinbold were in attendance.                                                                                     
3:17:32 PM                                                                                                                    
Representative  Guttenberg  was   concerned  about  who  was                                                                    
impacted by  the bill. He  considered that the bill  was the                                                                    
lowest  on his  priority  list and  he  thought it  affected                                                                    
people across the  board. He thought it was  more prudent to                                                                    
start  with  larger  fiscal  issues  before  taking  on  the                                                                    
smaller ones. He thought the  package of bills on the agenda                                                                    
was difficult.                                                                                                                  
3:20:50 PM                                                                                                                    
Co-Chair  Neuman  MOVED  to REPORT  CSHB  4003(FIN)  out  of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal note.                                                                                                       
Representative Wilson OBJECTED. She  was unsure how the bill                                                                    
would  affect  business  and individuals,  and  without  the                                                                    
information was  unwilling to move the  bill from committee.                                                                    
She discussed use of heating fuel in her district.                                                                              
Co-Chair Neuman noted  that the motion was to  move the bill                                                                    
from committee.                                                                                                                 
A roll call vote was taken on the motion.                                                                                       
IN FAVOR: Saddler, Edgmon, Gara,  Guttenberg, Pruitt, Munoz,                                                                    
Neuman, Thompson                                                                                                                
OPPOSED: Wilson, Gattis, Kawasaki                                                                                               
The MOTION PASSED (8/3).                                                                                                        
CSHB  4003(FIN)  was  REPORTED out  of  committee  with  "no                                                                    
recommendation"  and with  one fiscal  impact note  from the                                                                    
Department of Revenue.                                                                                                          
3:23:27 PM                                                                                                                    
AT EASE                                                                                                                         
3:26:48 PM                                                                                                                    
HOUSE BILL NO. 4005                                                                                                           
     "An Act  relating to the  mining license  tax; relating                                                                    
     to  the  exploration   incentive  credit;  relating  to                                                                    
     mining  license  application,  renewal, and  fees;  and                                                                    
     providing for an effective date."                                                                                          
3:27:06 PM                                                                                                                    
Vice-Chair  Saddler  noted that  the  committee  had a  full                                                                    
discussion pertaining  to the bill in  previous meetings. He                                                                    
echoed  the comments  of Representative  Pruitt. He  did not                                                                    
support the mining  tax but would vote to move  the bill out                                                                    
of committee. He  thought the concept that  the taxes spread                                                                    
the burden on  too few people was a  rhetorical argument and                                                                    
he disagreed.                                                                                                                   
Representative  Gara supported  the bill.  He did  not think                                                                    
the  bill would  raise  much money,  and  regretted than  an                                                                    
amendment  to  the bill  the  previous  day had  failed.  He                                                                    
recounted that  the proposal  had been  for mines  that made                                                                    
over $250,000  per year in profit  to pay an 11  percent tax                                                                    
on profits; which he thought  was modest. He noted that with                                                                    
the amendment that  did not pass the bill  would have raised                                                                    
an  extra $7  million, and  in total  would have  raised $14                                                                    
million. He added  that the mining tax had  not been changed                                                                    
since approximately 1955, and it  was a profit-based tax. He                                                                    
thought  the  current 9  percent  tax  would only  apply  to                                                                    
larger mines. He did not  think larger profitable mines paid                                                                    
very much  back to the state.  He was concerned that  if the                                                                    
same approach  was taken with  every resource  industry, the                                                                    
fiscal gap  would not  go away  and the  burden would  be on                                                                    
those who did not make large amounts of money.                                                                                  
Co-Chair  Neuman  MOVED  to REPORT  CSHB  4005(FIN)  out  of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal note.                                                                                                       
Representative Wilson  OBJECTED. She reminded  the committee                                                                    
that the  bill constituted a  29 percent increase  in taxes.                                                                    
She referred  to a  letter she  had received  that indicated                                                                    
the bill would  deter new investment in the  state and would                                                                    
shorten the  lives of existing  mines. She  discussed future                                                                    
investment in mining  and jobs in the industry.  She did not                                                                    
consider  the tax  to be  trivial. She  was concerned  about                                                                    
diminished mining  investment in  the state and  thought the                                                                    
state should do more  to incentivize mines, oil development,                                                                    
and other industry.                                                                                                             
A roll call vote was taken on the motion.                                                                                       
IN FAVOR: Edgmon, Gara, Guttenberg,  Munoz, Pruitt, Saddler,                                                                    
Neuman, Thompson                                                                                                                
OPPOSED: Wilson, Gattis, Kawasaki                                                                                               
The MOTION PASSED (8/3).                                                                                                        
There  being  NO  further   OBJECTION,  CSHB  4005(FIN)  was                                                                    
REPORTED out of committee  with "no recommendation" and with                                                                    
one fiscal impact note from the Department of Revenue.                                                                          
3:33:20 PM                                                                                                                    
AT EASE                                                                                                                         
3:36:38 PM                                                                                                                    
HOUSE BILL NO. 4006                                                                                                           
     "An  Act relating  to the  fisheries  business tax  and                                                                    
     fishery resource landing tax;  removing the minimum and                                                                    
     maximum  restrictions on  the annual  base fee  for the                                                                    
     reissuance  or  renewal  of  an   entry  permit  or  an                                                                    
     interim-use   permit;  relating   to  refunds   of  the                                                                    
     fisheries  business   tax  and  the   fishery  resource                                                                    
     landing tax to local  governments; and providing for an                                                                    
     effective date."                                                                                                           
3:36:46 PM                                                                                                                    
Representative Gara stated that there  had been an hour long                                                                    
discussion on the bill the previous day.                                                                                        
Vice-Chair  Saddler  addressed  the  fiscal  note  from  the                                                                    
Department of  Revenue, which had a  requested appropriation                                                                    
of $19.4 million in FY 17,  and an increase of $400,000 each                                                                    
year  thereafter.  He informed  that  there  was $50,000  of                                                                    
estimated FY 16 supplemental cost, and no position changes.                                                                     
Representative  Wilson  asked for  the  date  on the  fiscal                                                                    
Co-Chair  Neuman  MOVED  to REPORT  CSHB  4006(FIN)  out  of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal note.                                                                                                       
Representative  Wilson  OBJECTED.   She  recalled  that  the                                                                    
discussion the previous  day had lasted close  to two hours.                                                                    
She thought most members were  confused as to the details of                                                                    
the tax.  She thought the bill  needed the most work  of all                                                                    
the tax bills  on the agenda. She was unsure  of the effects                                                                    
of   the  bill   and  thought   the  fishing   industry  had                                                                    
experienced major changes recently.                                                                                             
A roll call vote was taken on the motion.                                                                                       
IN FAVOR: Guttenberg, Munoz, Pruitt,  Saddler, Edgmon, Gara,                                                                    
Neuman, Thompson                                                                                                                
OPPOSED: Gattis, Kawasaki, Wilson                                                                                               
The MOTION PASSED (8/3).                                                                                                        
There  being  NO  further   OBJECTION,  CSHB  4006(FIN)  was                                                                    
REPORTED  out of  committee with  an "amend"  recommendation                                                                    
and  with one  fiscal  impact note  from  the Department  of                                                                    
3:40:43 PM                                                                                                                    
AT EASE                                                                                                                         
3:45:21 PM                                                                                                                    
HOUSE BILL NO. 4004                                                                                                           
     "An Act establishing an individual income tax; and                                                                         
     providing for an effective date."                                                                                          
3:45:33 PM                                                                                                                    
RANDALL  HOFFBECK,  COMMISSIONER,   DEPARTMENT  OF  REVENUE,                                                                    
stated  that the  income  tax  was the  largest  of the  tax                                                                    
components  proposed by  the governor;  and at  $200 million                                                                    
per  year  (6 percent  of  federal  tax liability  for  each                                                                    
taxpayer), it  was a relatively  modest tax. He  stated that                                                                    
the  proposed  tax  was  approximately  20  percent  of  the                                                                    
average state  income tax in  the nation. He stated  that it                                                                    
was   part  of   the  total   fiscal  package   of  everyone                                                                    
contributing towards a fiscal solution.                                                                                         
KEN ALPER,  DIRECTOR, TAX  DIVISION, DEPARTMENT  OF REVENUE,                                                                    
communicated that  Mr. Spanos would narrate  the majority of                                                                    
the presentation and he would help by forwarding slides.                                                                        
BRANDON   S.   SPANOS,   DEPUTY  DIRECTOR,   TAX   DIVISION,                                                                    
DEPARTMENT  OF  REVENUE  (via  teleconference),  provided  a                                                                    
PowerPoint  presentation  titled   "New  Sustainable  Alaska                                                                    
Plan:  Pulling  Together  to Build  Our  Future:  Governor's                                                                    
Special Session  Individual Income  Tax Bill HB  4004" dated                                                                    
June 2,  2016 (copy  on file). He  addressed slide  2 titled                                                                    
"Individual Income Tax":                                                                                                        
     "An Act establishing an individual income tax; and                                                                         
     providing for an effective date."                                                                                          
Mr. Spanos turned to slide 3, " Income Tax (new AS 43.22)":                                                                     
     What it Does                                                                                                               
     •Creates Individual Income Tax at 6% of Federal Tax                                                                        
     •Similar structure to Alaska's historic income tax,                                                                        
     which was repealed in 1980                                                                                                 
     •The historic tax peaked at 16% of Federal Tax                                                                             
     •Provides for withholding by employers                                                                                     
     •Also taxes out of state income, partnerships, S-corps                                                                     
     How it Differs from Regular Session Bill                                                                                   
     •Cleans up language related to taxation of trusts                                                                          
     •Removes fishery crew shares from withholding tax                                                                          
     •Delays effective date to January 2018                                                                                     
Mr. Spanos  detailed that the  department had worked  on the                                                                    
bill to  clean up the language  so that trusts would  not be                                                                    
taxed directly.  He noted  that the  delay of  the effective                                                                    
date  was in  order to  give the  department enough  time to                                                                    
formulate  regulations and  build the  tax system  and allow                                                                    
for electronic filing options.                                                                                                  
3:49:57 PM                                                                                                                    
Mr. Spanos addressed slide 4, "Income Tax (new AS 43.22)":                                                                      
     How Much Does it Raise?                                                                                                    
     • $100 million in FY18, $205 million in FY19                                                                               
     • After 2019 tied to inflation and income growth                                                                           
     How Does it Impact Alaskans?                                                                                               
     • About 20-30% of Alaskans will have no liability                                                                          
     • Very low tax burden on households who make < $50,000                                                                     
     • Most households will pay substantially less than 1%                                                                      
     of income                                                                                                                  
     • State income taxes are deductible from federal                                                                           
     income tax, for those who itemize                                                                                          
     • 43 states currently have an income tax                                                                                   
Mr. Spanos  provided a  brief overview  of how  the proposed                                                                    
tax  compared to  the federal  tax on  slide 5,  "Income Tax                                                                    
(new  AS 43.22)."  He noted  that  the proposed  rate was  6                                                                    
percent of  a person's federal income  tax liability; thusly                                                                    
the  effective Alaska  tax rate  would be  0.6 percent  of a                                                                    
person's income if  they were in the 10  percent bracket for                                                                    
federal taxable income. He  highlighted that federal taxable                                                                    
income was  not gross  income, and  tax would  be calculated                                                                    
after deductions,  exemptions, and  credits. He  pointed out                                                                    
that  the  highest federal  tax  bracket  (at 39.6  percent)                                                                    
would equate to an effective Alaska rate of 2.38 percent.                                                                       
Mr. Spanos  reviewed slide 6, "Income  Tax Estimates", which                                                                    
showed a  bar graph  depicting estimated  tax for  a married                                                                    
couple filing  jointly with two  children. The  graph showed                                                                    
gross  income from  20,000  to 100,000.  He  pointed that  a                                                                    
gross income of  $50,000 would require a tax  payment of $15                                                                    
per year.                                                                                                                       
3:52:22 PM                                                                                                                    
Mr. Spanos addressed slide 7,  "Income Tax Estimates," which                                                                    
included  a  graph  showing estimated  tax  for  a  head-of-                                                                    
household with  two children.  He noted  that the  tax level                                                                    
had one less exemption. The  tax for $50,000 in gross income                                                                    
would equal $97.                                                                                                                
Co-Chair Thompson asked about  the delayed effective date of                                                                    
January 2018  listed on slide  3. He provided an  example of                                                                    
an individual who  filed an extension on  her federal taxes.                                                                    
He asked how the delay impacted the estimated revenues.                                                                         
Mr.  Spanos answered  that the  federal government  required                                                                    
estimated  payments. He  thought the  state would  expect to                                                                    
incorporate  the portion  of the  internal  revenue code  to                                                                    
also require  estimated tax payments for  individuals with a                                                                    
larger amount of tax due.                                                                                                       
Co-Chair Thompson  provided another example of  a person who                                                                    
would  receive  a  deduction  from  their  income  by  their                                                                    
employer.  He  asked  if  Mr.  Spanos  foresaw  a  potential                                                                    
problem. He  asked if  there was an  effect on  families and                                                                    
Mr. Spanos  responded that if an  individual had withholding                                                                    
from  a completed  W-4 form,  the state  would consider  the                                                                    
matter  and make  adjustments in  the  form of  a refund  or                                                                    
otherwise. He noted  that an individual could  request a W-4                                                                    
form at any time in  order to make adjustments. He discussed                                                                    
tax  software  that  was available  to  aid  individuals  in                                                                    
calculating  W-4  corrections  to exemptions,  so  that  the                                                                    
proper amount was withheld.                                                                                                     
3:56:57 PM                                                                                                                    
Representative Kawasaki  pointed to slide 3  and asked about                                                                    
the historic  tax that peaked  at 16 percent of  federal tax                                                                    
Mr.  Alper answered  that the  16 percent  mentioned on  the                                                                    
slide had been the state's  statutory tax rate in the 1970s.                                                                    
The bill proposed a lower tax rate of 6 percent.                                                                                
Representative  Kawasaki asked  about the  modelling in  the                                                                    
presentation  related  to  married  couples  with  kids  and                                                                    
single heads of  a household with kids (slides 6  and 7). He                                                                    
wondered  if the  department was  aware of  how many  people                                                                    
were in each of the categories being examined.                                                                                  
Mr. Spanos  replied that the  department had a good  idea of                                                                    
the  numbers, and  noted that  the Internal  Revenue Service                                                                    
published a  document called "The Statistics  of Income." He                                                                    
thought  that the  department had  provided the  material to                                                                    
the  committee  earlier in  the  year,  and the  information                                                                    
included individuals  with an Alaskan address  and whom they                                                                    
had  assumed were  all Alaska  residents. The  materials had                                                                    
identified  information pertaining  to  income brackets  and                                                                    
Representative Kawasaki  asked about the logic  behind the 6                                                                    
percent income tax.                                                                                                             
Mr.  Alper   answered  that  when  the   governor  had  been                                                                    
formulated  the fiscal  plan the  previous  fall, there  had                                                                    
been many components. Considering  the various components as                                                                    
well  as  the  revenue   forecast,  the  administration  had                                                                    
identified  that $200  million was  still needed  to balance                                                                    
the  budget.  Various options  had  been  discussed and  the                                                                    
decision  had  been made  to  introduce  an income  tax  and                                                                    
choose a tax  rate in order to generate  the remaining funds                                                                    
to complete the fiscal plan package.                                                                                            
Representative Gara referred to slide  6, and stated that he                                                                    
was willing  to consider an  income tax  if it was  fair. He                                                                    
asked if the  testimony purported that the  proposed tax was                                                                    
one-fifth of  the rate  of the average  state income  tax in                                                                    
other states.                                                                                                                   
4:01:08 PM                                                                                                                    
Commissioner  Hoffbeck replied  that other  states generally                                                                    
had their own tax brackets, but  they equated about 30 to 32                                                                    
percent of the federal liability.                                                                                               
Representative  Gara  pointed to  slide  6  that related  to                                                                    
taxes  on gross  income,  and understood  that gross  income                                                                    
meant much the same as "take-home pay" before deductions.                                                                       
Mr.  Alper  relayed  that gross  income  was  income  before                                                                    
federal   withholding,  and   was  the   actual  salary   an                                                                    
individual would receive.                                                                                                       
Representative Gara  believed things needed to  be balanced.                                                                    
He  had seen  several proposals  to cut  the permanent  fund                                                                    
dividend by $1000, and commented  that a very wealthy person                                                                    
would not  be affected by such  a change. He referred  to an                                                                    
Institute of Social and Economic  Research (ISER) study that                                                                    
indicated  that   for  50  percent  of   Alaskans,  the  PFD                                                                    
represented 20  percent of their income.  He interpreted the                                                                    
graph on  slide 6 to say  that gross income of  $100,000 per                                                                    
year would require a person to  pay $465 in state tax, which                                                                    
equated  to one  half of  one percent.  He asked  if he  was                                                                    
calculating the amount correctly.                                                                                               
Mr. Alper answered in the affirmative.                                                                                          
Representative  Gara believed  that  the  committee and  the                                                                    
legislature  should spend  more time  considering a  measure                                                                    
such  as  the income  tax  in  order  to  arrive at  a  fair                                                                    
solution.   He  thought   the   flat   tax  percentage   was                                                                    
problematic. He  asked if he  could request  some additional                                                                    
Mr.  Alper  answered  that   the  department  would  provide                                                                    
modelling to the best of its ability.                                                                                           
Representative Gara  requested to  see a model  including an                                                                    
exception from  paying taxes on  a PFD.  He wanted to  see a                                                                    
model of taxed  income for a single  person household making                                                                    
over $125,000  per year at  the average tax rate  across the                                                                    
country (among states  that had income tax).  He asked about                                                                    
determining tax  rates for individuals making  over $125,000                                                                    
but with multiple adults in the household.                                                                                      
Mr.  Alper  responded  that   the  standard  deductions  and                                                                    
numbers tended  to double when  there was two adults  in the                                                                    
household. For  estimating purposes, a single  person making                                                                    
$125,000 would  compare to a married  (double-income) couple                                                                    
making $250,000.                                                                                                                
Representative Gara  asked for modelling of  a single person                                                                    
household  making   equal  to  or  greater   than  $125,000,                                                                    
modelled  with two  adults  in the  household  and with  two                                                                    
children in the household.                                                                                                      
4:05:52 PM                                                                                                                    
Commissioner Hoffbeck  replied that the department  could do                                                                    
the  modelling.  He referred  back  to  the notes  from  the                                                                    
original presentation to the committee  about the income tax                                                                    
proposal, and  thought there were  models of  multiple sizes                                                                    
of  households   at  the  6   percent  rate.   He  suggested                                                                    
multiplying  the  data  times  5  to  achieve  the  national                                                                    
average rate.                                                                                                                   
Representative  Gara asked  if  one-fifth of  a federal  tax                                                                    
rate would be close to  the national average of state income                                                                    
tax rates.                                                                                                                      
Mr.  Alper answered  that approximately  30 percent  was the                                                                    
average of the  41 states with full income  taxes. He stated                                                                    
that most of  the states were taxing with  a progressive tax                                                                    
based  on gross  income  rather  than a  flat  tax based  on                                                                    
federal liability. He stated  that the percentage equivalent                                                                    
to the federal  tax tended to vary by income  level, but the                                                                    
average tax was the equivalent  of 30 percent of federal tax                                                                    
Representative  Gara  asked  how one-fifth  of  federal  tax                                                                    
liability would relate to average taxes.                                                                                        
Mr.  Alper responded  with an  example of  a household  with                                                                    
$100,000  income  and a  person  with  a  25% tax  rate.  He                                                                    
discussed deductions  and other  factors. He  specified that                                                                    
the  modelling on  slide 6  indicated the  average $100,000-                                                                    
income household  was paying about $9,000  in federal taxes.                                                                    
Based on the federal tax,  6 percent would equate to roughly                                                                    
Representative Gara  asked about a single  person who earned                                                                    
an  income  above  $500,000; and  additionally  asked  about                                                                    
corresponding numbers  for households  with two  adults, and                                                                    
households with two children. He  wondered about the revenue                                                                    
impact  of the  bill if  such households  were charged  one-                                                                    
fifth  of the  federal tax  rate. He  stated that  wealthier                                                                    
people  had deductions  and  would pay  a  lower state  tax;                                                                    
while  lower  income  people  did not  have  the  luxury  of                                                                    
deducting their  state tax  from their  federal tax.  He was                                                                    
concerned that  the bill would raise  close to one-fifteenth                                                                    
of the  state's deficit.  He thought there  was not  a great                                                                    
deal of fiscal  impact considering the burden  that would be                                                                    
imposed upon  people if  the bill  passed. He  thought there                                                                    
should be more hearings on the bill.                                                                                            
4:10:42 PM                                                                                                                    
Representative  Guttenberg referred  to slide  3, and  asked                                                                    
why an exemption was provided to fishery crew.                                                                                  
Mr. Alper  answered that  fishery crew  operated differently                                                                    
and did not have federal  taxes withheld by their employers.                                                                    
He noted  that the  historic income  tax code  had generated                                                                    
concern that  many of the  fishery crew  were non-residents.                                                                    
The  administration had  instituted a  requirement that  the                                                                    
state withheld funds so that  the individuals were easier to                                                                    
track, but had  taken the requirement out of  the bill after                                                                    
understanding it  would place a burden  of fishing captains.                                                                    
He clarified that  crew members would still  pay their taxes                                                                    
even though they were not  required to withhold as they were                                                                    
earning their wages during the year.                                                                                            
Representative  Guttenberg asked  if the  administration had                                                                    
considered raising  the tax  rate and  then giving  a credit                                                                    
for residents  who received  the PFD as  a way  of capturing                                                                    
more non-resident taxes.                                                                                                        
Mr.  Alper  thought   Representative  Guttenberg  raised  an                                                                    
interesting idea.  The income tax  was the simplest  form of                                                                    
tax  because it  was  fixed  number of  a  fixed amount.  He                                                                    
relayed that  most states were  using a more  complex system                                                                    
that considered adjusted gross  income, bracketed tax rates,                                                                    
and  then state  exemptions. He  contemplated that  the idea                                                                    
was the beginning of creating a complicated tax code.                                                                           
4:13:45 PM                                                                                                                    
Vice-Chair  Saddler asked  if the  department had  charts to                                                                    
show how much  in taxes would be collected  from the various                                                                    
cohorts of Alaskans per $10,000 of gross annual income.                                                                         
Mr. Spanos asked Vice-Chair Saddler to repeat the question.                                                                     
Vice-Chair  Saddler repeated  his question.  He thought  the                                                                    
information  indicated that  20  to 30  percent of  Alaskans                                                                    
would  have  zero income  tax  liability.  He asked  if  the                                                                    
expected tax revenue was broken down by income cohort.                                                                          
Mr.  Spanos  answered  in the  affirmative,  and  agreed  to                                                                    
provide the data to the committee.                                                                                              
Vice-Chair  Saddler  asked if  the  department  had done  an                                                                    
analysis to see  what percentage of the  proposed income tax                                                                    
would be paid by non-resident workers.                                                                                          
Mr. Spanos  responded in the affirmative.  According to data                                                                    
from  the  Department  of Labor  and  Workforce  Development                                                                    
(DLWD),  there  were   currently  over  87,888  non-resident                                                                    
workers, and 422,516 Alaskan workers.  He offered to provide                                                                    
the committee with the information in print.                                                                                    
4:16:33 PM                                                                                                                    
Co-Chair Thompson  believed that  the DLWD had  stated there                                                                    
was  approximately  $2.6 billion  in  wages  earned by  non-                                                                    
residents and  taken outside  the state. He  did not  have a                                                                    
breakdown of  income levels that contributed  to the amount,                                                                    
and hoped the department could provide the information.                                                                         
Mr. Spanos  answered that the  department would do  its best                                                                    
to provide the information.                                                                                                     
Vice-Chair Saddler requested the  information in each income                                                                    
cohort   broken   down   into  resident   and   non-resident                                                                    
categories. He considered that if the presumption that oil-                                                                     
industry workers  were higher-income,  he wanted to  see how                                                                    
much  of the  higher-income cohorts  would be  paid by  non-                                                                    
residents versus residents.                                                                                                     
Vice-Chair Saddler had heard in  previous hearings that most                                                                    
states that had developed  an income tax through calculating                                                                    
a  percentage of  federal  tax had  later  modified the  tax                                                                    
model. He wondered  if the department was  working to design                                                                    
an  income  tax   that  did  not  use   federal  income  tax                                                                    
calculation brackets.                                                                                                           
Mr.  Alper responded  that once  states began  modifying the                                                                    
tax structure,  there were  personalized exemptions  to meet                                                                    
the  needs and  internal politics  of the  state. He  stated                                                                    
that if the decision was  made to move from straight federal                                                                    
liability  and towards  tax based  on  actual income,  there                                                                    
would be  brackets and plans to  set up. He noted  that part                                                                    
of the benefit  of a year delay was that  the department was                                                                    
anticipating an  implementation plan, which they  would work                                                                    
on the following six months  to develop after the passage of                                                                    
the  bill.  The  time  would allow  for  the  department  to                                                                    
consult expertise,  make modifications, and get  the program                                                                    
running by 2018.                                                                                                                
Co-Chair Thompson  recalled a similar  tax in the  1970s. He                                                                    
asked Mr.  Alper to  research the prior  income tax  and its                                                                    
Mr.  Alper  answered  that  the  department  would  get  the                                                                    
information  to the  committee. He  recalled that  the state                                                                    
had switched  to a hybrid  model with a graduated  rate that                                                                    
peaked at 14.5 percent, and was repealed in 1980.                                                                               
4:20:34 PM                                                                                                                    
Vice-Chair  Saddler restated  his question  pertaining to  a                                                                    
different tax model  that did not base its  structure on the                                                                    
federal tax.                                                                                                                    
Mr.  Alper answered  in  the negative.  He  stated that  the                                                                    
administration's  plan was  to implement  the bill  that was                                                                    
before the committee.                                                                                                           
Vice-Chair  Saddler referred  to research  on other  states'                                                                    
income  taxes. He  wondered if  Mr. Alper  had observed  the                                                                    
taxes of  other states rise and  fall with the needs  of the                                                                    
Mr. Alper was not sure  how often other states changed their                                                                    
tax rates. He  qualified that changes might  be necessary in                                                                    
the initial implementation of the  income tax. He hoped that                                                                    
once the  income tax was  in place, it would  remain steady.                                                                    
He  thought it  would  be burdensome  to  revisit the  topic                                                                    
frequently after the bill was implemented.                                                                                      
Vice-Chair Saddler did  not hear a firm  commitment that the                                                                    
department did  not plan to  make changes to the  income tax                                                                    
Commissioner Hoffbeck responded  that the administration was                                                                    
proposing  a 6  percent tax  rate. He  pondered that  it was                                                                    
difficult to  foresee the future  finances of the  state. He                                                                    
asserted that the  legislature would have to  take action to                                                                    
change  the tax  rate,  and  the change  could  not be  made                                                                    
Co-Chair Neuman  wondered about  the number  of out-of-state                                                                    
workers, not including workers in fisheries.                                                                                    
Mr.  Alper thought  that Mr.  Spanos had  mentioned slightly                                                                    
less  than  88,000 non-resident  workers  in  the state.  He                                                                    
referred to  Vice-Chair Saddler's question about  the income                                                                    
cohorts; and stated that  the administration interpreted the                                                                    
numbers  to  form  a   bar-bell-shaped  income  curve,  with                                                                    
higher-income workers  as well as  a fairly large  number of                                                                    
lower-income seasonal fishery and tourism workers.                                                                              
4:23:49 PM                                                                                                                    
Co-Chair Neuman looked at the  graph on slide 6 and pondered                                                                    
that about  20 percent of  the expected $200 million  in tax                                                                    
revenues would come from out of state workers.                                                                                  
Mr.  Alper relayed  that  the  administration had  estimated                                                                    
that 15 to  20 percent of the total revenue  would be coming                                                                    
from non-residents. He noted that  there was also a scenario                                                                    
in which Alaska residents would  earn some income from a job                                                                    
outside  the  state  or from  owning  business  or  property                                                                    
outside  the state.  He specified  that  the outside  income                                                                    
would not be taxable.                                                                                                           
Representative Gattis referred to  the historical 16 percent                                                                    
tax,  and suspected  that the  rate had  started at  a lower                                                                    
percentage.  She  had concerns  that  costs  of the  program                                                                    
would  be discovered  after  the bill  had  passed. She  was                                                                    
concerned that  an income tax  would be a  disincentive from                                                                    
making an income. She relayed  that people from her district                                                                    
favored  a  sales tax.  She  reiterated  concerns about  the                                                                    
proposed  income tax  being raised  above 6  percent in  the                                                                    
future.  She relayed  a personal  story about  receiving her                                                                    
first paycheck  and discovering how  much she paid  for tax.                                                                    
She related  that she  was going  to be a  "no" vote  on the                                                                    
4:27:40 PM                                                                                                                    
Representative   Edgmon  wanted   additional  detail   about                                                                    
estimated  income   tax  revenues  from   non-residents.  He                                                                    
relayed  hearing   from  industry  participants   about  the                                                                    
proposed taxes,  and thought industry favored  a broad-based                                                                    
tax such as  an income tax. He had heard  a discussion about                                                                    
an 8  percent tax. He  thought an  income tax was  the least                                                                    
regressive form  of a broad-based  tax that had  come before                                                                    
the committee, and asked the department to comment.                                                                             
Commissioner Hoffbeck related  that the issue Representative                                                                    
Edgmon  brought  up   had  been  a  large   portion  of  the                                                                    
discussion with  the governor to  determine whether  a sales                                                                    
tax or  income tax was  more appropriate. He thought  that a                                                                    
flat sales tax was a  very regressive tax, although it could                                                                    
be made less  regressive by exempting food  and other items.                                                                    
He  asserted that  the income  tax, particularly  as it  was                                                                    
tied to the  federal tax liability, was as  progressive of a                                                                    
tax  that the  state  could  put in  place.  He referred  to                                                                    
Representative   Gara's  comments   on   reduction  of   the                                                                    
Commissioner   Hoffbeck   continued,    stating   that   the                                                                    
administration had  endeavored to  make the  proposed income                                                                    
tax  as balanced  as possible  and  as low  as possible.  He                                                                    
discussed motivation for the  income tax proposal, including                                                                    
the  effort  to  involve  Alaska  residents  in  paying  for                                                                    
government services  and helping with a  budget solution. He                                                                    
thought that  people had  become used to  a system  that was                                                                    
unusual. He  noted that an income  tax would be tied  to the                                                                    
treasury,  which would  reflect  of economic  growth in  the                                                                    
state. He  discussed the dichotomy  of economic growth  as a                                                                    
strain on providing government  services, without more funds                                                                    
flowing into  the treasury.  He spoke to  the 8  percent tax                                                                    
Representative Edgmon  had referred  to, and  confirmed that                                                                    
ISER had used the number in a previous presentation.                                                                            
Co-Chair    Thompson   acknowledged    that   Representative                                                                    
Gabrielle LeDoux was in attendance.                                                                                             
Representative  Edgmon asked  about  possible revenues  from                                                                    
non-residents from a  statewide income tax as  compared to a                                                                    
statewide sales tax.                                                                                                            
Mr.  Alper answered  that the  administration  needed to  do                                                                    
more analysis but had the  sense that the amounts were about                                                                    
equal. A sales tax had  been less seriously discussed by the                                                                    
House  Finance  Committee  in  2003.  He  related  that  one                                                                    
concern about a sales tax  was the tremendous regional price                                                                    
disparity in  Alaska and disproportionate impact  on certain                                                                    
areas of the state.                                                                                                             
4:33:17 PM                                                                                                                    
Commissioner Hoffbeck added that  ISER had estimated that 15                                                                    
percent  of  commodities and  10  percent  of services  were                                                                    
purchased by non-residents.                                                                                                     
Co-Chair Neuman  believed there should be  a fair comparison                                                                    
between  a sales  tax and  an income  tax. He  thought wages                                                                    
were  probably much  higher in  rural Alaska  than in  urban                                                                    
Alaska. He  thought the state  needed something to  show the                                                                    
public  in  order  to gain  understanding  and  support.  He                                                                    
thought the uncertainty around the  table was related to the                                                                    
need for more information.                                                                                                      
Commissioner Hoffbeck referred back  to an ISER report which                                                                    
indicated there  were 5 categories that  would each generate                                                                    
income  of $350  million  to $400  million,  including: a  2                                                                    
percent flat  income tax; 10  percent of the  federal income                                                                    
tax; a  $600 reduction  in the  PFD; a  4 percent  sales tax                                                                    
(with   exclusions  for   food,  shelter,   healthcare,  and                                                                    
education); or a 3 percent sales tax without exclusions.                                                                        
Co-Chair Neuman  asked Commissioner Hoffbeck to  provide the                                                                    
information to  the committee. Commissioner  Hoffbeck agreed                                                                    
to do so.                                                                                                                       
Representative  Edgmon thought  that if  the bills  did come                                                                    
before the legislature the following  session there would be                                                                    
more  opportunity to  delve into  the regressive  aspects of                                                                    
the taxes.  He stressed  that a rural  resident would  see a                                                                    
dramatic change in their tax burden.                                                                                            
4:38:05 PM                                                                                                                    
Representative Gara  had a problem  with the  equity portion                                                                    
of the legislation.  He wondered how much  taxable income an                                                                    
individual would  have to make  to pay a $1,000  income tax.                                                                    
He  used the  example  of  a senior  citizen  who had  their                                                                    
dividend cut.                                                                                                                   
Commissioner  Hoffbeck answered  that  an individual  single                                                                    
taxpayer would have to earn  $100,000 to pay a $1,000 income                                                                    
Representative  Gara  asked why  it  was  fair that  someone                                                                    
making  $100,000  was paying  $1,000  in  income tax  and  a                                                                    
senior making $20,000 would lose a $1,000 of the dividend.                                                                      
Commissioner Hoffbeck  considered that  it was  necessary to                                                                    
look  at  the issue  on  a  broader  scale. He  provided  an                                                                    
example  of  a  senior   citizen  using  substantially  more                                                                    
government services than the  individual making $100,000 per                                                                    
year.  He  suggested  that  it was  a  balance  of  services                                                                    
received  with  monies  being  paid in  to  the  system.  He                                                                    
asserted that reducing the size  of the dividend would allow                                                                    
the state to retain other services.                                                                                             
Representative  Gara   disagreed  with  some  of   what  the                                                                    
commissioner  had said  but stated  that  he understood  the                                                                    
viewpoint being  expressed. He referred  to the  impetus for                                                                    
the income  tax proposal  being closure  of the  fiscal gap,                                                                    
and thought  it was  no longer  the case.  He referred  to a                                                                    
permanent fund  bill being considered by  the committee, and                                                                    
understood  that  the  bill   would  generate  roughly  $2.3                                                                    
billion. He asked what amount  was needed from an income tax                                                                    
or sales  tax to close  the fiscal gap when  considering the                                                                    
budget that recently passed the  legislature, the passage of                                                                    
the permanent fund  bill in committee, and  the forecast oil                                                                    
Commissioner Hoffbeck  did not  have the  information needed                                                                    
to  answer  the question.  He  stated  that the  information                                                                    
needed  for   a  sustainable   long-term  budget   would  be                                                                    
discernable  in  the  next  year   or  the  year  after.  He                                                                    
continued that  the department had not  made the calculation                                                                    
based on the interim status of bills.                                                                                           
Representative Gara thought  it was clear that  if the bills                                                                    
passed, the proposed  lowest income tax rate  in the country                                                                    
would not balance the budget.                                                                                                   
Mr.   Alper  thought   that  Representative   Gara  made   a                                                                    
reasonable statement.  He elaborated  that with  the passage                                                                    
of the  bills, in  addition to the  tax credit  reform bill,                                                                    
the state would  be a few hundred million  dollars short. He                                                                    
added that  the price of  oil was currently a  little higher                                                                    
than what was forecast.                                                                                                         
Representative Gara  commented that the public  did not want                                                                    
to see  an income  tax that  would perpetually  increase. He                                                                    
wanted to see further analysis  and thought a tax should fit                                                                    
the state's fiscal picture.                                                                                                     
4:43:18 PM                                                                                                                    
Representative Wilson  asked how  many people in  Alaska did                                                                    
not have  any income  and were  living off  of some  type of                                                                    
Mr. Alper deferred to Mr. Spanos.                                                                                               
Mr. Spanos did not have the information on hand.                                                                                
Representative  Wilson  asked  about the  number  of  people                                                                    
earning between $1 and $50,000 per year.                                                                                        
Mr.  Alper  believed  the  average   income  in  Alaska  was                                                                    
Commissioner Hoffbeck clarified that  about 20 to 30 percent                                                                    
of  Alaskans had  no  tax liability,  and  earned less  than                                                                    
$50,000 per year.                                                                                                               
Representative Wilson  stated that  there was much  focus on                                                                    
taxing non-Alaskans, and wondered if  the state had a larger                                                                    
problem  with the  number of  individuals using  the welfare                                                                    
system. She wondered  if it would have more of  an impact on                                                                    
the state's  budget if more  Alaskans were put to  work than                                                                    
subject to an income tax.                                                                                                       
Commissioner   Hoffbeck  did   not   know   the  answer   to                                                                    
Representative Wilson's question.                                                                                               
Mr.  Alper elaborated  that  the 20  percent  to 30  percent                                                                    
figure was  substantially lower than the  national statistic                                                                    
of  40 percent  to 45  percent of  American households  that                                                                    
paid no federal income tax.  He added that Alaska had higher                                                                    
average income,  and also had  the PFD to provide  a minimum                                                                    
household income.                                                                                                               
Representative Wilson  discussed statistics of  people using                                                                    
different  welfare programs.  She wondered  about statistics                                                                    
if the  PFD was  not counted as  income. She  reiterated her                                                                    
comment  about  using training  and  education  to get  more                                                                    
individuals  into the  workforce  and  reduce state  program                                                                    
Co-Chair  Neuman  calculated  that   there  was  about  $800                                                                    
million remaining  in the  deficit after  the aforementioned                                                                    
legislation was put in to effect.                                                                                               
4:47:12 PM                                                                                                                    
Commissioner   Hoffbeck  answered   that  there   were  also                                                                    
existing taxes that earned in the $500 million range.                                                                           
Vice-Chair  Saddler  discussed  spending  by  Department  of                                                                    
Health  and  Social  Services (DHSS),  and  compared  it  to                                                                    
revenues  from the  proposed income  tax.  He requested  any                                                                    
analysis that may be helpful  in understanding the impact of                                                                    
the proposed income tax. He asked if there was a way to                                                                         
calculate what constituted a "fair" tax rate.                                                                                   
Commissioner Hoffbeck answered that a fair tax rate was in                                                                      
the eye of the beholder.                                                                                                        
HB 4004 was HEARD and HELD in committee for further                                                                             
Co-Chair Thompson discussed the schedule for the following                                                                      
day. He recessed the meeting to a call of the chair [note:                                                                      
the meeting never reconvened].                                                                                                  
^RECESSED TO A CALL OF THE CHAIR                                                                                                
4:49:13 PM                                                                                                                    
4:49:17 PM                                                                                                                    
The meeting was adjourned at 4:49 p.m.