Legislature(2023 - 2024)DAVIS 106
02/22/2023 06:00 PM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): Alaska's Economy | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
February 22, 2023
6:01 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): ALASKA'S ECONOMY
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
JONATHAN WILLIAMS, Chief Economist and Executive Vice President
of Policy
American Legislative Exchange Council
Anchorage, Alaska
POSITION STATEMENT: Provided a presentation on how fiscal
policies impact state economies.
ACTION NARRATIVE
6:01:10 PM
CHAIR BEN CARPENTER called the House Special Committee on Ways
and Means meeting to order at 6:01 p.m. Representatives Allard,
Groh, McKay, Gray, Tilton, and Carpenter were present at the
call to order. Representative McCabe arrived as the meeting was
in progress.
^PRESENTATION(S): Alaska's Economy
PRESENTATION(S): Alaska's Economy
6:02:06 PM
CHAIR CARPENTER announced that the only order of business was
the Alaska's Economy presentation.
6:03:21 PM
JONATHAN WILLIAMS, Chief Economist and Executive Vice President
of Policy at the American Legislative Exchange Council, began a
PowerPoint presentation [hard copy included in the committee
packet] by describing the American Legislative Exchange Council
(ALEC) on slide 2, "About ALEC," which read as follows [original
punctuation provided]:
Founded in 1973
The American Legislative Exchange Council is America's
largest nonpartisan, voluntary membership organization
of state legislators dedicated to the principles of
limited government, free markets and federalism.
Comprised of nearly one-quarter of the country's state
legislators and stakeholders from across the policy
spectrum, ALEC members represent more than 60 million
Americans and provide jobs to more than 30 million
people in the United States.
6:05:19 PM
The committee took an at-ease from 6:05 p.m. to 6:10 p.m. [due
to technical difficulties].
6:10:32 PM
MR. WILLIAMS moved to slide 3, "Budget and Taxes," and outlined
the key take-aways from his 15 years of research. He emphasized
good tax policy was able to drive economic growth, job creation
and in-migration. He stated healthy states had better spending
prioritization and were more cost-effective.
MR. WILLIAMS continued to slide 4, "Five Essential Budget
Questions," which read as follows [original punctuation
provided]:
What is the role of government?
What are the essential services government must
provide to fulfill its purpose?
How will we know if government is doing a good job?
What should all of this cost?
When cuts must be made, how will they be properly
prioritized?
6:12:40 PM
MR. WILLIAMS displayed a list from slide 5, "ALEC Principles of
Taxation," and described the research from the ALEC Tax and
Fiscal Policy Task Force. He described simplicity and
transparency as straight forward, and expanded on the meaning of
neutrality as "it's not [the] government's job to pick winners
and losers through tax policy." He further added predictability
was important so businesses would be more likely to expand in a
state. He emphasized his last point of pro-growth was the most
important and was the underpinning of his 15 years of research
with Dr. Laffer.
6:14:31 PM
MR. WILLIAMS said states were directly competing for business
development, job creation, and population, and indicators of tax
policy were how states were gaining or losing population, such
as Alaska losing 6,000 residents in one year because of poor
policy. He added that people were "voting with their feet" for
more favorable opportunities, lower taxes, "right to work"
policies, or school choice policies.
6:18:19 PM
MR. WILLIAMS, in response to a question from Representative Gray
about which other states did not have a personal income tax or a
sales tax, stated that eight other states did not have a
personal income tax, and four other states did not have a
general state level sales tax. He added that out of the states
that did not have a state level sales tax, Alaska had the
highest local sales tax. In response to a follow-up question
from Representative Gray, stated that there was no state that
did not have a personal income tax or a sales tax. He added
that the states that did not have a personal income tax were the
most successful in population growth, gross domestic product
(GDP) growth, and job growth.
6:22:12 PM
MR. WILLIAMS, in response to a question from Representative
Allard about which states that did not have a personal income
tax did have a marijuana tax, said that he did not know the
number of states, but that the income from marijuana tax was
minimal compared to the rest of a state's income.
MR. WILLIAMS, in response to a follow-up from Representative
Allard about boroughs that had sales taxes, restated that Alaska
had the highest local sales tax of any state that did not have a
state-level sales tax.
6:24:01 PM
MR. WILLIAMS, in response to a question from Representative Groh
about Alaska having the lowest tax incidence in the U.S. as
reported by the District of Columbia and the Tax Foundation,
said it depends on how the tax incidence is measured. He added
the incidence of corporate tax averaged through Alaska was high
compared to the rest of the nation, because of the large tax
burdens on oil and gas companies. He further stated that ALEC
measured the tax incidence differently than the Tax Foundation,
which ranked Alaska as the third best business tax climate,
compared to ALEC ranking Alaska as the 21st. He emphasized that
a large factor for some businesses was if the state was a "right
to work"
state or not.
6:26:30 PM
MR. WILLIAMS, in response to a question from Representative Groh
as to whether the people of Alaska paid the tax burden placed on
oil companies, stated the research showed the consumer pays the
taxes placed on energy-related products.
6:27:12 PM
REPRESENTATIVE MCCABE asked if the taxes applied to stock
dividends as income would also be considered a tax to the people
for the statutorily required dividend that Alaska had to take
each year on its mineral wealth.
MR. WILLIAMS responded by stating that ALEC had not held a
position on that unique aspect of Alaska.
6:28:30 PM
MR. WILLIAMS, in response to a question from Representative Gray
that asked if ALEC supported the permanent fund dividend (PFD)
or other cash transfers from states, said that ALEC had not held
a position on the PFD.
6:29:17 PM
MR. WILLIAMS moved to slide 6, "Pro-Growth Reforms in States,"
and outlined the shift from policymakers to make their states
more competitive, as seen in five states that had introduced
flat personal income tax in 2022 and many other states that had
reduced personal income tax rates. He added that California was
too reliant on volatile revenue, such as capital-based taxes,
and had about a $25 billion budget shortfall that year.
6:33:02 PM
MR. WILLIAMS continued to discuss the issue that many states
were reliant on federal aid, the American Rescue Plan Act and
other pandemic relief, and that states saw a budget surplus
following the 2017 Tax Cuts and Jobs Act. He emphasized some
states had fallen behind others by not implementing competitive
tax policy.
6:35:01 PM
MR. WILLIAMS skipped to slide 10, "9 Lowest CIT States vs. 9
Highest CIT States," and highlighted Alaska as having the ninth
highest corporate income tax rate across the U.S. He emphasized
the efforts to reduce or eliminate corporate income tax were
bipartisan in North Dakota, Connecticut, and Colorado. He moved
to slide 12 and stated the taxes placed on businesses are
eventually paid by people, through lower wages, lower investment
returns, or inflation on the cost of products.
6:40:04 PM
MR. WILLIAMS displayed slide 13, "Threats to Economic
Competitiveness," which read as follows [original punctuation
provided]:
Overreliance on volatile forms of taxation
Overreliance on federal funds
Lack of spending restraint
Out-of-control debt growth
6:42:13 PM
MR. WILLIAMS, in response to a question from Representative
McCabe about what the average Alaskans' effective tax rate was,
said he would have to defer to someone who had done the
calculations.
MR. WILLIAMS, in response to a question from Representative Groh
about whether Wyoming was a high growth state since it had
neither a corporate income tax nor a personal income tax, stated
Wyoming was facing many issues due to coal having been more
regulated by the government.
MR. WILLIAMS, in response to a follow-up from Representative
Groh about how Kansas factored into the analysis from Mr.
Williams, said he had done a study following the Kansas tax
reforms and saw the tax cuts had been beneficial, but the
increased spending and the loss of federal subsidies had
unbalanced the budget.
6:46:08 PM
MR. WILLIAMS, in response to a question from Representative Groh
and Chair Carpenter about Alaska and Wyoming having low tax
rates and low economic growth, and whether there was data to
support economic growth and institutional tax, said Alaska and
Wyoming were outliers for states that did not have a personal
income tax. He stated the U.S. had seen increased economic
growth over 15 or 25 year averages in states that had lowered
taxes and prioritized spending. He added that Alaska had high
corporate income tax and was not a "right to work" state.
6:49:03 PM
MR. WILLIAMS, in response to a question from Chair Carpenter
about which individual taxes had an impact on business
investment in the economy, stated that the most important taxes
to reduce were capital-based taxes, while sales and property
taxes had less impact on business investment than capital-based
taxes.
6:51:29 PM
MR. WILLIAMS, in response to a question from Representative
Allard asking how education choice had played into Alaska's loss
of population, said that he believed education choice had played
a large role as an outcome of the pandemic. He added that West
Virginia, Arizona, Iowa, and Utah had already made moves to
increase education choices.
6:54:49 PM
MR. WILLIAMS, in response to a request from Chair Carpenter for
data comparing migration and education policies, stated he did
not have the data on hand as the policies were too new for data
to be collected.
6:56:45 PM
REPRESENTATIVE GRAY commented on slide 10, "9 Lowest CIT States
vs. 9 Highest CIT States," and he compared the migration data
from 2013 to 2022 and noted Wyoming and Ohio had lost working
age population, and Iowa, New Jersey, Delaware, and Oregon had
gained working age population in contradiction to Mr. Williams.
MR. WILLIAMS responded the new census data had shown Oregon
losing population, and the population it was gaining was
primarily from states with higher tax burdens. He added that
Oregon did avoid a sales tax, and it was gaining retirees from
high tax states like California.
7:00:04 PM
MR. WILLIAMS, in response to a question from Representative Gray
about whether Alaska should have reduced its military as it was
a federally funded program, stated his research was looking at
federal aid, of which the military was not a part. He brought
up slide 15 and 16 and compared the average funding makeup of a
state's budget in 1992 and 2020, and he commented on the
increase in federal funds.
MR. WILLIAMS, in response to a follow-up question from
Representative Gray about whether it was acceptable for Alaska
to accept federal infrastructure funds or federal match funds,
said many were one-time funds, had strings attached, or had
maintenance costs associated with the funds.
7:04:06 PM
MR. WILLIAMS, in response to a question from Chair Carpenter
about what the relationship between reliance on federal funds
and the stability of a state's budget, stated that it was a
challenge for states to decide how to manage federal aid due to
the incentives that came with federal aid. He emphasized Utah,
and the commission it had, which created a contingency plan in
case federal funds were reduced, and outlined how programs would
be re-managed in response to less federal funding.
7:08:07 PM
REPRESENTATIVE MCCABE remarked on Alaska's roughly $12 billion
budget being comprise of $7 billion of federal funds, and that
Alaska was "way upside down" with the federal funds it receives.
CHAIR CARPENTER stated Representative McCabe's comment was
outside the scope of the presentation, and he recalled from a
previous presentation from the Department of Revenue (DOR) that
Alaska received about a third of its revenue from federal funds.
7:09:33 PM
MR. WILLIAMS, in response to a question from Representative Groh
about whether Alaska was over reliant on the fluctuating revenue
of oil, turned to slide 14, "State Tax Revenue Volatility," and
described the most volatile revenue being corporate income tax,
compared to personal income or sales tax, averaged across all 50
states.
7:11:37 PM
MR. WILLIAMS, in response to a question from Representative Gray
about Alaska only having a corporate income tax, which was the
most volatile, and whether adding a personal income or a sales
tax would stabilize Alaska's budget, said he would not advocate
for the creation of a personal income tax. He noted that the
addition of taxes to previous states had stalled the economies,
and he advised that the focus should be on reducing spending.
7:13:46 PM
REPRESENTATIVE ALLARD asked whether the data was deceiving as
the borough taxes in Anchorage had relied on fuel and alcohol
sales tax.
CHAIR CARPENTER clarified that the graph was intended to focus
on the state level.
MR. WILLIAMS added that the data he presented focused on the
three main revenue sources for states, and did not focus on the
lesser revenue sources.
7:15:02 PM
CHAIR CARPENTER stated the committee was looking to stimulate
economic growth in Alaska and address unstable revenue sources,
and he asked whether the committee should look at how its
legislation might affect local municipalities.
MR. WILLIAMS said it was important to look at how changes in
revenue or spending structure could affect boroughs.
7:16:39 PM
MR. WILLIAMS continued with the presentation on slide 20,
"States With the Highest In-Migration," which contained in-
migration data from July 2021 to July 2022, and which read as
follows [original punctuation provided]:
1. Florida (318,855)
2. Texas (230,961)
3. North Carolina (99,796)
4. South Carolina (84,030)
5. Tennessee (81,646)
6. Georgia (81,406)
7. Arizona (70,984)
8. Idaho (28,639)
9. Alabama (28,609)
10. Oklahoma (26,791)
MR. WILIAMS added the post-pandemic environment had shifted
towards more focus on choice in education and more mobility in
jobs with remote work. He emphasized all the states on the list
had eliminated or reduced personal income tax, or already had
low or no personal income tax.
7:19:34 PM
MR. WILLIAMS continued with slide 21, "States With the Highest
Out-Migration," from the same data set as the previous slide,
and which read as follows [original punctuation provided]:
1. California (-343,230)
2. New York (-299,557)
3. Illinois (-141,656)
4. New Jersey (-64,231)
5. Massachusetts (-57,292)
6. Louisiana (-46,672)
7. Maryland (-45,101)
8. Pennsylvania (-39,957)
9. Virginia (-23,952)
10. Minnesota (-19,400)
MR. WILLIAMS highlighted that all the states on the list had
high tax burdens, and Louisiana and Virginia were the only
"right to work" states. He added that remote work allowed
individuals to move to lower cost of living states.
7:20:54 PM
MR. WILLIAMS moved to slide 22, "9 No Income Tax States vs. 9
Highest Income Tax States Net Migration Estimates," which read
as follows [original punctuation provided]:
No Income Tax States:
1. Alaska (-6,126)
2. Florida (318,855)
3. Nevada (20,781)
4. New Hampshire (6,303)
5. South Dakota (8,424)
6. Tennessee (81,646)
7. Texas (230,961)
8. Washington (-3,580)
9. Wyoming (2,152)
Highest Out-Migration:
1. New York (-299,557)
2. Oregon (-17,331)
3. California (-343,230)
4. New Jersey (-64,231)
5. Hawaii (-15,212)
6. Minnesota (-19,400)
7. Maryland (-45,101)
8. Vermont (1,141)
9. Delaware (11,826)
MR. WILLIAMS added that the states without personal income tax
had net in-migration, with Alaska and Washington having been the
only outliers, and the states with high personal income tax had
net out-migration, with Delaware having been the only outlier.
7:22:59 PM
MR. WILLIAMS, in response to a comment from Representative
McCabe about the similarity between Alaska and Kansas having
minimal income tax, high spending, and out-migration, stated
that businesses would look at the expected future tax
environment of the state, a primary driver having been
overspending of the state's budget. He added there was likely
to be a decrease in federal aid to states in the future, which
would make it difficult for states to balance budgets without
planning.
7:26:45 PM
MR. WILLIAMS, in response to a question from Representative Groh
about the outliers discussed during the presentation, and
whether there was a graph to reinforce if they were outliers or
not, stated from previous additions of his book, Rich States,
Poor States, and from other organizations, graphs depicting the
correlations discussed were available.
7:28:00 PM
MR. WILLIAMS, in response to a comment from Representative Gray
on slide 21, "States With the Highest Out-Migration," and the
correlation between housing prices and migration over the
pandemic being significant, said in addition to housing costs in
a state, the quality of life, job opportunities, educational
opportunities, and take-home pay all played a role in migration.
He added the factor of weather into migration was not as
influential as taxes, as California had seen significant out-
migration due to its high housing cost from high taxes, despite
having great weather.
7:31:44 PM
CHAIR CARPENTER commented on the importance of addressing the
structural imbalance and low performing economy within Alaska,
and on how Alaska seemed to be an outlier in many areas. He
asked Mr. Williams what he thought to be the most important
aspect of Alaska's economy on which the House Special Committee
on Ways and Means could focus.
7:33:22 PM
MR. WILLIAMS highlighted there was no silver bullet to Alaska's
issues, and Alaska being unique made cherry picking policies
from other states less likely to respond similarly. He added
that the high corporate income tax made Alaska unfavorable to
businesses, and that regulation reform and union control were
low-cost policies to implement to boost economic growth.
7:36:22 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
7:36 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Presentation by Chief Economist ALEC Jonathan Williams.pdf |
HW&M 2/22/2023 6:00:00 PM |