Legislature(2023 - 2024)DAVIS 106
04/26/2023 06:00 PM House WAYS & MEANS
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| Audio | Topic |
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| Start | |
| Presentation(s): Economic Impact of Revenue Measures | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 109 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
April 26, 2023
6:03 p.m.
MEMBERS PRESENT
Representative Ben Carpenter, Chair
Representative Jamie Allard
Representative Tom McKay
Representative Kevin McCabe
Representative Cathy Tilton
Representative Andrew Gray
Representative Cliff Groh
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
PRESENTATION(S): ECONOMIC IMPACT OF REVENUE MEASURES
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
ALEXEI PAINTER, Director
Legislative Finance Division
Legislative Affairs Agency
Juneau, Alaska
POSITION STATEMENT: Co-presented the PowerPoint, titled
"Economic Impact of Revenue Measures."
CONOR BELL, Fiscal Analyst
Legislative Finance Division
Legislative Affairs Agency
Juneau, Alaska
POSITION STATEMENT: Co-presented the PowerPoint, titled
"Economic Impact of Revenue Measures."
ACTION NARRATIVE
6:03:31 PM
CHAIR BEN CARPENTER called the House Special Committee on Ways
and Means meeting to order at 6:03 p.m. Representatives Allard,
McKay, McCabe, Tilton, Gray, Groh, and Carpenter were present at
the call to order.
^Presentation(s): Economic impact of Revenue Measures
Presentation(s): Economic impact of Revenue Measures
6:04:14 PM
CHAIR CARPENTER announced that the only order of business would
be the presentation on the economic impacts of revenue measures.
CHAIR CARPENTER informed members that the presentation provides
follow-up responses to questions posed in a previous meeting.
6:04:58 PM
ALEXEI PAINTER, Director, Legislative Finance Division,
Legislative Affairs Agency, co-presented the PowerPoint, titled
"Economic Impact of Revenue Measures" [hard copy included in the
committee packet]. He began on slide 2, listing the
presentation's topics, as follows: the comparison of sales and
income tax revenue projections; distributional analysis
concerning the impact of broad-based taxes and how the PFD
changes by income; and the regional analysis and its
limitations. He stated that the Legislative Finance Division is
not advocating for any fiscal plan or measure.
6:06:02 PM
CONOR BELL, Fiscal Analyst, Legislative Finance Division,
Legislative Affairs Agency, co-presented the PowerPoint, titled
"Economic Impact of Revenue Measures." He read from slide 3,
which read as follows [original punctuation provided]:
Department of Revenue
Chainbridge, which has micro-data for other states,
developed
estimates for four sales tax proposals based on
2019-2020 data
• DOR adjusted for nationwide retail sales growth
• Overall results are similar to past DOR models when
adjusted for
nationwide retail sales growth since previous
modeling. Chainbridge
data allows for more detailed modeling of exemptions
• Assumes revenue growth of 3% per year (2.5%
inflation plus 0.5%
population growth)
• Buckeye Institute
Adjusts DOR 2016 HB 5004 fiscal note for impacts on
consumer
and industry behavior (18% revenue reduction)
• Tax Foundation
Uses BEA Personal Consumption Expenditures data to
estimate
tax base and value of exemptions. Assumes 85%
collections rate.
6:09:21 PM
MR. BELL, in response to a question from Chair Carpenter, stated
that the most recent Department of Labor population projections
relate that the trend of population decline is reversing.
6:10:20 PM
MR. BELL returned to the presentation on slide 4. He read from
the the slide, which read as follows [original punctuation
provided]:
• Department of Revenue
Uses 2020 IRS Statistics of Income data with 5%
nonresident adjustment
• Scaled up ~20% to account for wage growth since 2020
• Assumes revenue growth of 3% per year (2.5%
inflation plus 0.5% population growth)
• Institute on Taxation and Economic Policy
Methodology similar to DOR, but uses 2018 IRS
Statistics of Income data
• Buckeye Institute
Internal static model with similar results to 2018
DOR estimate. Adjusts for impacts on consumer and
industry behavior.
6:12:15 PM
MR. BELL moved to and read slide 5, which read as follows
[original punctuation provided]:
• Dynamic modeling estimates how a policy change
impacts individual and business behavior
• Buckeye is the only publicly-available source with
Alaska-specific dynamic modeling on revenue options
• Buckeye's dynamic modeling estimates sales tax
revenues decline by 18% when accounting for behavior
changes
• DOR's tax projections have always been static models
due to the difficulty of objectively predicting
taxpayer behavior. The degree to which company
behavior is influenced by tax changes has been central
to past oil tax debates in the legislature, for
example.
6:13:36 PM
MR. BELL, in response to a question from Chair Carpenter, stated
that modeling accounts for both taxes. He explained that,
through applying dynamic modeling, the flat income tax
assumption is lowered by 15 percent. He said a progressive
income tax with a top marginal rate of 7 percent shows a 43
percent decline in revenues collected.
6:14:22 PM
MR. BELL, in response to a question from Representative McCabe,
explained that an income tax would cause a 43 percent decrease
in revenue, based on the estimates by Buckeye Partners. He said
part of this is from high-income earners having more incentive
to decrease their tax liability.
REPRESENTATIVE MCCABE offered the understanding that Mr. Bell's
comments mean the high-income earners would have a greater
ability to move out of state; therefore, they would not pay the
tax.
MR. BELL responded that Buckeye Partners' analysis suggests
there would be a greater change in behavior among the high-
income earners.
6:16:03 PM
REPRESENTATIVE GROH commented that 40 states have income taxes,
and Alaska is the only state which does not have a broad-based
tax; more than two-thirds of states have both a sales tax and
income tax. He asked Mr. Bell if the Buckeye Partners' analysis
seemed right to him.
CHAIR CARPENTER added to the question, inquiring whether there
is data which supports or refutes the analysis.
6:17:04 PM
MR. PAINTER answered that the 15 percent to 18 percent range is
more standard than 43 percent; however, he expressed doubt
whether there is an objective data review of what would be a
generally accepted number. He expressed the opinion that 43
percent is unusually high.
CHAIR CARPENTER concurred. He said there are several states
which have high income taxes and have experienced years of
outward migration.
6:18:20 PM
REPRESENTATIVE GRAY expressed surprise that any state which
instituted a progressive income tax would have 43 percent of the
higher earners move out of state.
6:18:54 PM
REPRESENTATIVE MCCABE expressed the opinion that the
conversation is bigger than just 43 percent of people leaving
the state. He suggested that people find ways to shelter money
and remove it from the revenue stream.
6:20:15 PM
CHAIR CARPENTER suggested that the committee acknowledge there
would be a behavior change which may not be positive for state
revenue.
6:20:52 PM
MR. BELL returned to the PowerPoint Presentation to read slide
6, which read as follows [original punctuation provided]:
Impacts to hypothetical families of four with annual
income of $25,000, $50,000, $100,000 or $200,000
Compares three policy changes, each with roughly $640
million revenue impact:
4% broad-based sales tax exempting groceries
1.9% income tax on Adjusted Gross Income (AGI) with
no deductions
$1,000/person PFD reduction
Estimates use various simplifying assumptions and are
for illustrative purposes only
MR. BELL explained that the estimates in the chart on slide 6
are rough approximations. He noted that the 4 percent sales tax
would have a higher impact on lower income households because
these households tend to spend a greater portion of income each
month. He continued that with an income tax, the impact would
be the same for families earning $25,000, $50,000, and $100,000
annually, while families earning $200,000 annually would pay a
slight bit lower rate because of the assumption that these
families would itemize the tax against their federal tax
liability. He said the $1,000 permanent fund dividend (PFD)
reduction has a higher impact on lower income families, assuming
that the PFDs are subjected to federal income tax at the
families' marginal rate.
6:23:22 PM
CHAIR CARPENTER asked about the reduction on the chart as it
relates to the PFD.
6:23:59 PM
MR. PAINTER explained that about eight years ago there was not
much data available, so the Legislative Finance Division
investigated how a distributional analysis could be done in a
way which is easily understandable. He said an analysis was
published using hypothetical families of various sizes.
6:25:13 PM
MR. BELL returned to the presentation to read slide 7, which
reads as follows [original punctuation provided]:
Policy design can significantly impact the
distributional impact of a broad-based tax
For example, adding a deduction to an income tax or
a progressive rate structure would change the
distributional impact of the tax
• Sales tax exemptions can also impact the
distributional impact because of the varying mix of
goods and services purchased at different income
levels.
6:26:08 PM
MR. BELL moved to and read slide 8, which read as follows
[original punctuation provided]:
• A 2016 study by ISER economists analyzed the
distributional impacts of revenue changes, including
indirect impacts
• The chart below shows the impact on disposable
income per $100 million raised, not the total impact
of the policy changes listed
• Note that the study predates major federal income
tax changes from the 2017 Tax Cuts and Jobs Act
MR. BELL said the table from the 2016 Institute of Social and
Economic Research (ISER) University of Alaska Anchorage study is
attached. He explained that the chart shows the impact on
disposable income per $100 million in revenue raised.
CHAIR CARPENTER pointed out that, from the 50th to 90th
percentile, the different options are equally distributed. He
said the committee is looking at multiple options, and the chart
shows an either/or option between different tax proposals. He
asked what the distribution analysis would be if the PFD cut was
not applied, and a sales tax was implemented instead. He asked
whether a large negative distributional analysis at the lower
levels with the PFD exists, and if it is no longer there, should
it be added into the increase on one of the other tax options.
6:29:10 PM
MR. PAINTER responded that Chair Carpenter's comments highlight
the limitations of the analysis, in that any option to close the
deficit is going to have an impact on the economy, as well as to
private incomes. He said that spending $1 billion from the
Constitutional Budget Reserve (CBR) is not sustainable in the
long term but would also not have an impact on the economy,
whereas taking $1 billion from the economy would have an impact.
He said the challenge of doing distributional analysis using the
past is determining the comparison.
6:31:02 PM
REPRESENTATIVE MCCABE asked whether there would be an impact
since the PFD has a multiplier effect of private money on the
economy.
MR. PAINTER answered yes and said the 2016 ISER study examined
the short-term economic impacts of revenue and budget options,
attempting to get an approximation of the different options to
close the deficit. He said that all the options on the chart
affect the economy in some way, and the questions become: what
is the multiplier on the economy and what is the distribution
analysis?
6:32:41 PM
REPRESENTATIVE GROH asked if there are other differences between
the ISER mythology and the division's mythology, as seen on
slide 6 and slide 8.
MR. BELL responded that the ISER study is more thorough.
6:33:40 PM
MR. PAINTER returned to the presentation, and paraphrased slide
9, which read as follows [original punctuation provided]:
Any fiscal policy change will be felt differently
across Alaska
• Due to limited data, it is difficult to estimate
regional differences
An income tax and PFD are relatively easy to compare
across geographic areas because of the existence of
detailed income data
Sales taxes are difficult to compare across
geographic regions because of differences in
consumption patterns
• The next several slides show different ways of
illustrating regional differences, though all have
limitations
• Alaska Economic Trends' annual Cost of Living issue
provides more detail on comparing costs across
communities
6:35:55 PM
MR. PAINTER moved to slide 10 to show the per-capita personal
income by region. He said the Bureau of Economic Analysis has
data from 2021 which shows the average amount of income for
every person in any given area. He advised that the data shown
on the slide are estimates at an individual level, not at the
household level, and 2021 was unusual because of the government
aid during the pandemic. He said the analysis does not account
for differences in cost of living, distribution of income, or
the significance of noneconomic activities. He said that
analyses cannot ascertain how a two percent sales tax would
impact residents differently because of differences in
lifestyles and economic activity; therefore, it is difficult to
understand the true impact on the economy and individuals. He
said that the division could apply an income or PFD reduction
and see a percentage which would apply to the median income in
various regions.
6:37:28 PM
REPRESENTATIVE MCKAY brought attention to the 2021 per-capita
personal income figure for Bristol Bay, which is listed as
$155,155.
MR. PAINTER answered that this is because of the [commercial]
fishing activity in Bristol Bay.
6:37:52 PM
MR. PAINTER moved to slide 11 and explained that the U.S.
Department of Defense (DoD) tracks the cost of living in
multiple Alaska communities in order to account for the cost-of-
living differences for service members stationed outside the
continental U.S. He said the index excludes housing and may not
reflect consumption habits of residents. He explained that the
average index in the U.S. is 100, while the highest in Alaska is
in Bethel and Cordova at 146. He pointed out that this is 46
percent higher than the average U.S. city. He stated that the
lowest index in Alaska is Anchorage and Wasilla at 128.
6:40:28 PM
CHAIR CARPENTER pointed out that there are portions of the state
with a higher cost of living, like communities that are on the
road network, while those not on the network have a lower cost
of living.
MR. PAINTER explained that DoD is also looking at the amount of
on-base expenditures and off-base expenditures. He said that a
community like Kodiak, which has a large coastguard base, would
presumably have more on-base shopping available at a reduced
cost.
6:41:36 PM
REPRESENTATIVE GRAY shared that the commissary at the Joint Base
Elmendorf Richardson (JBER) is not much cheaper than most
grocery stores in Anchorage. He asked about income data in
Bethel, as Bristol Bay is at $155,155, but Bethel is the lowest
in per-capita income. He suggested that the data does not
include the villages off the road system, as there are typically
higher prices in such communities.
MR. PAINTER said there is no data on this, and, while there is
significant information about the hub communities, it is not
representative of the much smaller communities. He reiterated
that Bristol Bay has [commercial] fishing activity; therefore,
income inequality may be affecting the data. He pointed out
that Bethel may have a difference in consumption patterns since
more of the economy is dependent on subsistence.
6:44:23 PM
REPRESENTATIVE GROH emphasized that communities shown in the
cost-of-living chart are much bigger than the villages not
shown, and remote places would have a higher cost of living.
MR. PAINTER responded that smaller communities are going to have
higher prices and would be impacted. He said that the remote
communities do not have a military presence, so the data is not
available.
REPRESENTATIVE GROH commented that the income and sales tax
estimations are not representative of the proposals in front of
the committee.
MR. PAINTER explained that if the division were to estimate the
impact of the bills before the committee, there would be data
limitations as well. He explained that there is no
distributional analysis on sales tax in Alaska. He said that
data from Minnesota was used instead as it has sophisticated
data and analysis.
6:46:12 PM
REPRESENTATIVE ALLARD expressed the understanding that some
subsistence would apply. She questioned whether other subsidies
would be accounted for.
MR. PAINTER expressed the understanding that the data on income
includes all cash income, but the value of noneconomic sources,
like subsistence, would not be accounted for.
REPRESENTATIVE ALLARD asked about public assistance.
6:47:12 PM
MR. BELL said that government transfer payments are included.
6:47:28 PM
REPRESENTATIVE TILTON asked if income includes investment and
corporate dividends.
MR. BELL answered yes.
6:47:56 PM
MR. PAINTER returned to the presentation on slide 12 and showed
a graph of fuel costs by area. He said the data is sourced from
the Alaska Department of Commerce, Community, and Economic
Development's report from July 2022, titled Current Community
Conditions: Fuel Prices Across Alaska. He noted that the North
Slope Borough subsidizes heating fuel, setting the current price
at $1.50 a gallon; however, gasoline is more expensive because
it is not subsidized, and the current price is at $7.20 a
gallon. He expressed uncertainty as to why heating fuel is
cheap in King Cove. Looking at urban areas, he said, fuel is
typically priced at the $3 a gallon to $4 a gallon range, with
prices in rural areas being about double this.
6:49:21 PM
MR. PAINTER moved to slide 13 which showed a graphic depicting
wild food harvests by area in 2017. He commented that it is
difficult to quantify the impact on people because of the
differences in noncash sources available. He explained that the
Anchorage harvest is about 50 pounds per person, whereas in
arctic Alaska it is over 400 pounds per person. He said it is
difficult to examine prices alone and turn this into an idea of
how a sales tax could potentially impact different communities
because of the vast differences in the economies.
6:50:44 PM
MR. PAINTER moved to slide 14, which read as follows [original
punctuation provided]:
'Tax base' is the estimate of total economic
activity subject to a given tax
• Residents in rural areas will often purchase goods
in hub communities, making geographic comparisons
difficult
• Visitors and seasonal workers also can impact the
amounts
MR. PAINTER said that residents in rural areas will often buy
goods in hub communities, further making geographic comparisons
difficult. He talked about the dynamics of hub communities and
sales tax. He said a person who lives in Haines may do shopping
in Juneau, or on the internet. He stressed the difficulty when
considering different types of consumption and the impact of a
sales tax. He said that another factor would be visitors and
seasonal workers.
6:54:51 PM
REPRESENTATIVE GRAY asked about Hydaburg and why the tax base is
lower per capita.
MR. PAINTER offered his understanding that Hydaburg is not on
the Prince of Wales road system and individuals opt to travel to
Ketchikan; however, Thorne Bay is on Prince of Wales and is an
example of a mini hub which bounces off other hubs, such as
Ketchikan and Juneau. He added that Hydaburg may just have one
store.
6:56:25 PM
REPRESENTATIVE MCCABE noted that there are many communities with
no stores, so people do air taxi runs. He said that typically a
community will buy supplies a month at a time.
REPRESENTATIVE GRAY pointed out that the costs are fifty times
more in Unalaska. He noted that Unalaska has seasonal workers.
6:57:56 PM
REPRESENTATIVE GROH asked the presenters to address personal
income in different areas and to point out the average versus
the median.
MR. PAINTER stated that per capita would be an average, meaning
the entire income of an area is divided by the number of earning
individuals, whereas a median income would be a middle fiftieth
percentile of earning individuals. He said that some
communities, like Bristol Bay, may have [commercial] fishing
vessels and more per-capita income, dragging the number up,
where comparatively the median earner may be earning less than
$155,155 a year.
REPRESENTATIVE GROH asked about the uncertainty of the data
presented and how this relates to the uncertainty concerning the
difference between an income tax versus a sales tax.
MR. PAINTER answered that in distributional analysis using
income tax there is a small degree of uncertainty because the
Internal Revenue Service publishes data by income level, and
this makes it easy to determine the amount collected and how
Alaskans fall into different income brackets; however, he said
that a sales tax is harder to ascertain since there is no
quality statewide data available.
7:02:42 PM
CHAIR CARPENTER thanked the presenters.
7:03:03 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
7:03 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HWAM Economic Impacts of Revenue Measures - Legislative Finance Division.pdf |
HW&M 4/26/2023 6:00:00 PM |