CHAIRMAN TIM KELLY called the Labor and Commerce Committee meeting g to order at 1:40 p.m. He introduced SB 344 (ESTABLISH EMPLOYMENT TAX) as the first order of business. JACK KREINHEDER, Office of Management & Budget, explained SB 344 is intended to be a modest step towards helping to solve the state's budget shortfalls both this year and in the years to come. He expressed the Governor's openness to looking at spending reductions, use of reserves and other measures to help balance the budget. But given the size of the shortfalls being faced this year and in the coming years, the Governor feels that it would be fiscally irresponsible to not look at some at least modest measures to raise revenues. SB 344 is one of four pieces of legislation that have been introduced to do that. The employment tax would raise about $31 million. It is less in the initial year because it would be in effect only part of the year. This tax would be levied only on persons age 19 and older. The bill contains a provision that would reduce the burden on people making less than $1,000 a year. Mr. Kreinheder, addressing a state income tax, said it was felt that the climate was not right for an income tax and that an employment tax was a more modest first step towards helping fill the fiscal gap and to collect something from out-of-state workers who now pay very little towards the services that they get from the state while they are working here. Mr. Kreinheder said the collection of the tax would be as streamlined as possible, and while there would be some cost for administration, the burden for employers would not be very sizable. The Department of Revenue would be the lead agency in the collection of the tax, and they would work with the Department of Labor in piggybacking the taxes on the other payroll taxes. The Department of Commerce and Department of Fish and Game would also be involved for self-employed individuals under business license provisions, as well as for fishermen who gets permits, to make sure that the tax is collected. Number 107 SENATOR KELLY asked if this tax was modeled on the old school tax that Alaska used to have. JACK KREINHEDER answered that it is similar to the school tax, but the school tax had some other exemptions not contained in SB 344. Number 132 SENATOR RIEGER asked if the bill provides a power for the Department of Revenue to refund overpayments. JACK KREINHEDER responded that the provision was not in the bill, but he thought it was intended that such a provision would be provided through regulations. SENATOR RIEGER inquired what the criminal penalty would be for failure to pay the employment tax. JACK KREINHEDER answered that he thought it was misdemeanor with a $1,000 fine and up to six months in jail. Number 163 SENATOR SALO asked what the cost of administering this tax would be. JACK KREINHEDER answered that the total cost of administration to the Department of Revenue and the Department of Labor would be approximately $900,000 per year. Number 202 RESA JERREL, State Director, National Federation of Independent Businesses, stated their strong opposition to SB 344. They believe that there are ways for the state to save money without disrupting services. Ms. Jerrel provided a list to the committee of services that the government does that the private sector can very easily do. Number 230 SENATOR KELLY voiced his concern with the name of the bill and suggested it should be changed to a school employment tax instead of just an employment tax. Number 250 SENATOR SALO stated she has a problem with regressive taxes like this one, and is concerned that teenagers and others who are getting very small checks will have to pay that $100 tax. Number 276 SENATOR RIEGER commented that the state should be trying to get some tax out of the itinerant work force that comes to the state every year to work for a short time. Number 282 SENATOR SHARP spoke to the high cost of the education budget, and he thinks it is obvious that it is necessary to create more funds for education. Number 300 SENATOR RIEGER moved that the title and references in the bill that refer to "employment tax" be changed to "school employment tax." SENATOR SALO objected. The roll was taken with the following result: Senators Rieger, Sharp and Kelly voted "Yea" and Senator Salo voted "Nay." The Chairman stated the motion carried and the amendment would be incorporated into a Labor & Commerce committee substitute. Number 315 SENATOR RIEGER moved that CSSB 344(L&C) be passed out of committee with individual recommendations. Hearing no objection, it was so ordered.