HOUSE BILL NO. 236 An Act imposing a tax on employment; and providing for an effective date. Co-Chair Harris MOVED to ADOPT Work Draft 23-LS0921, Version X dated 3/19/04. There being NO OBJECTION, it was so ordered. Representative Hawker announced that Representative Wilson was unable to attend the hearing and that Mr. Ecklund would explain the changes in the proposed committee substitute. MR. PETER ECKLUND, STAFF TO REPRESENTATIVE WILLIAMS, noted that Version X deletes from Version W the lines 13-28 on page 2, subsection (d). He explained that this deletes two triggers: one where the tax would go into effect if the CBR is less than $1 billion, and the other where the trigger goes off when the CBR goes higher than $2.5 billion. Mr. Ecklund noted a change adding new language requested by the Department of Revenue on page 2, lines 30-31. It states "The Department of Revenue may, if it will result in cost savings for the state in the administration of the tax, for employers in the administration of the tax, or for both." Mr. Ecklund explained that the Department of Labor receives federal funds with restrictions on how the monies can be used, and the department wanted to ensure that the Legislature would not require it to cooperate in ways that didn't make sense. Representative Hawker expressed that the sponsor, Representative Wilson, is in concurrence with the proposed changes. Representative Croft asked what difference the word "may" makes when the department can do whatever it wants. Mr. Ecklund affirmed that the Department of Revenue asked for the language. Representative Croft also questioned the meaning of the words, "or for both." Representative Croft asked why the trigger was removed from Version X. He noted that the billion dollar minimum amount in the Constitutional Budget Reserve has been important in the discussions of both Governor Murkowski and the Conference of 55. Co-Chair Williams replied that this would generate $42 million a year, and to start up a process and then stop it would cost more. The people of the state are asking for this type of tax. Representative Croft MOVED to ADOPT Amendment #1. Co-Chair Harris OBJECTED. Representative Croft explained that his office talked to the National Conference of State Legislatures (NCSL) about every state's income tax structure. He noted that 35 states have some kind of income tax that is graduated, but none have graduated it downward, or charged a higher percentage for poorer people. These 35 states adopted the concept that wealthier people should pay a higher percentage of their income on an income tax. If each person was taxed $100, as you go up in income level, it becomes a smaller and smaller percentage of that income. If a person is extremely wealthy, it is a miniscule percentage of that income. He is not proposing any substantive amendments to the bill but feels it should be titled correctly. He said it should be known as the only regressive income tax in the nation. Representative Hawker stated that this bill is known as a head tax, and he asked the sponsor of the amendment to consider changing his proposed language to "We've All Got a Stake in the Future of Alaska Act." He said that's the point of this bill. It is not designed as a comprehensive income tax, but as an ante up for participating in the bounty of Alaska. Co-Chair Harris asked Representative Croft when the state passed a school tax and if it was $10 per year for everyone regardless of income level. Representative Croft affirmed that it was $10 for everyone. Co-Chair Harris asked if he thought this is different. Representative Croft said that at the time, there was a progressive income tax included, so this is an alternative minimum. Co-Chair Williams commented that he had suggested a $100 school tax last year when this was introduced. Representative Croft commented on "class responsibility." He felt that there is nothing fundamentally unfair about the idea of upper incomes paying proportionately more. Conservatives make the argument for a flat tax. He noted that only regressive ideas are on the table--proposals that would take from the poorest members of society. He said that this title is at least honest about what this bill does. He didn't want this measure to be a "trick" for some later tax. He thought that this is the only regressive tax in the nation and it deserves further discussion. Co-Chair Harris agreed that there's no doubt that the bill is based on people who earn income. He discussed current user fees and taxes, noting that poor people pay the same amount as do rich people. Everyone benefits from education; he expressed concern that the Legislature can't mandate that this will go to education, just as it can't dedicate the Permanent Fund to education. It can be called an education fund but Co-Chair Harris said that it doesn't guarantee it will be appropriated to education. It's a user fee. Representative Hawker commented that the characterization of this as a regressive device intrigued him. He pointed out that the bill was crafted to create a huge exemption for folks who have no jobs and exist purely by subsistence or public welfare or retirement income. The State is looking at a basis to generate earnings to support public institutions, and in this case, the base is the people who are working. TAPE HFC 04 - 63, Side A  Representative Hawker continued, in aggregate it is a substantial contribution to education. It seems a reasonable approach and looks at value for value. It asks working people to give a small amount back to the state. A roll call vote was taken on the motion to adopt Amendment #1. IN FAVOR: Croft OPPOSED: Fate, Foster, Hawker, Joule, Meyer, Moses, Stoltze, Chenault, Williams, Harris The MOTION FAILED (1-10). Amendment #1 was not adopted. Vice-Chair Meyer said he would not make an amendment without the bill sponsor being present. He noted on page 5, line 6 where it says, "the legislature may appropriate the estimated amounts to be collected and separately accounted for" under this section for education. He appreciated that this would go to education. The Legislature has talked about inflation proofing education for some time, and he spoke in favor of a source of money to inflation-proof the Foundation Formula. He said he would like to change the word "may" to "shall" because it is a little stronger, even though money can't be dedicated. He would wait to discuss it with the sponsor. Discussion ensued regarding whether the language change would carry any weight. Vice-Chair Meyer stated his understanding that there would be legal concerns in charging out-of-state workers twice the amount charged to in-state workers, or $200. Representative Stoltze introduced Mr. Bill Sherrill, who works for the Transportation & Infrastructure Committee in the U.S. Congress. BILLIE JO HANSEN, REPRESENTING SELF, VIA TELECONFERENCE, WASILLA, voiced opposition to the bill because she felt that it would penalize the retired person who moves off of social security to work part-time to make ends meet. She thought it would also penalize motivated youth in the workforce who may work only one day a week for eight hours. She felt there are other ways to do this, and it is not appropriate to call it an education tax. She suggested calling it a work permit tax and setting it on a percentage rate of income for the year. She would rather give $100 to a school for her son's education than to the General Fund when it's not specifically appropriated to education. HB 236 was heard and HELD in Committee for further consideration.