Legislature(2015 - 2016)BILL RAY CENTER 208
06/02/2016 03:00 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB4003 | |
| HB4005 | |
| HB4006 | |
| HB4004 | |
| Recessed to a Call of the Chair | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB4004 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB4003 | TELECONFERENCED | |
| += | HB4005 | TELECONFERENCED | |
| += | HB4006 | TELECONFERENCED | |
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
None
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.
SUMMARY
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
floor.
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
unfair.
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
RECONVENED
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
RECONVENED
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
note.
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
Revenue.
3:40:43 PM
AT EASE
3:45:21 PM
RECONVENED
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
Liability
•Similar structure to Alaska's historic income tax,
which was repealed in 1980
•The historic tax peaked at 16% of Federal Tax
liability
•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
requirements
•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
individuals.
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
liability.
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
deductions.
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
modelling.
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
liability.
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
$465.
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
configuration.
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
states.
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
rate.
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
administratively.
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
bill.
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
dividend.
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
tax.
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
prices.
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
welfare.
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
$50,000.
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
expenses.
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
consideration.
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
ADJOURNMENT
4:49:17 PM
The meeting was adjourned at 4:49 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| DOR presentation IIT hb4004 6-2-16.pdf |
HFIN 6/2/2016 3:00:00 PM |
HB4004 |
| HB 4004 AFL-CIO Resolution.pdf |
HFIN 6/2/2016 3:00:00 PM |
HB4004 |
| HB4004 Sponsor Statement - Governor's Transmittal Letter.pdf |
HFIN 6/2/2016 3:00:00 PM |
HB4004 |
| HB 4006 CFEC Permit Cap Analysis Feb 2016.pdf |
HFIN 6/2/2016 3:00:00 PM |
HB4006 |
| HB 4006 Value of Groundfish by Area, Species and Residency.pdf |
HFIN 6/2/2016 3:00:00 PM |
HB4006 |
| HB 4004 Alaska income by filing type and family size - DOR.pdf |
HFIN 6/2/2016 3:00:00 PM |
HB4004 |
| HB 4004 Distributional Analyses of Revenue Options for Alaska - Institute on Taxation & Economic Policy - April 2016.pdf |
HFIN 6/2/2016 3:00:00 PM |
HB4004 |
| HB 4004 DOR Response to House Finance Committee - 6.7.16.pdf |
HFIN 6/2/2016 3:00:00 PM |
HB4004 |
| HB 4004 Economic Impacts of Alaska Fiscal Options-Draft Report-ISER-March 11 2016.pdf |
HFIN 6/2/2016 3:00:00 PM |
HB4004 |
| HB 4004 Nonresidents Working in Alaska 2014.pdf |
HFIN 6/2/2016 3:00:00 PM |
HB4004 |