Legislature(1995 - 1996)

02/08/1996 08:00 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
 HB 449 - INCOME TAX ON INDIVIDUALS & FIDUCIARIES                            
                                                                               
 The next order of business to come before the House State Affairs             
 Committee was HB 449.                                                         
                                                                               
 Number 2144                                                                   
                                                                               
 CHAIR JAMES called on Representative Carl Moses, sponsor of HB 449.           
 REPRESENTATIVE CARL MOSES read the following sponsor statement into           
 record.                                                                       
                                                                               
 "Thank you Madame Chair for hearing house bill 449, a bill that               
 would establish a state personal income tax.                                  
                                                                               
 "With all the talk these days about the state's fiscal gap,                   
 estimated to be roughly half a billion dollars alone, it's time to          
 start the debate on raising new revenues to help address the                
 shortfall.                                                                    
                                                                               
 "That's why I introduced house bill 449."                                     
                                                                               
 "A personal income tax was generally considered the fairest tax,              
 and, because federal law allows deducting state income taxes from           
 the federal income tax, it should not create an unreasonable burde        
 on Alaska taxpayers.                                                          
                                                                               
 "A personal income tax would transfer money to the state that would           
 otherwise go to the feds, and it would return to the state some of            
 the money nonresidents earn in Alaska.                                      
                                                                               
 "In 1994 alone, over 77,000 nonresidents earned approximately $866            
 million in the state."                                                        
                                                                               
 REPRESENTATIVE MOSES commented most of the nonresidents did not               
 even buy a tube of toothpaste, for example, unless they absolutely            
 had to.  He also said with the tobacco tax bill floating around,              
 the nonresidents would probably bring their own cigarettes to save            
 money.  He continued to read the sponsor statement into the record.           
                                                                               
 "It's time some of that money was returned to the state.                    
                                                                               
 "Based on Alaska's personal income tax in place from 1949 to 1961,            
 house bill 449 would levy a flat tax on all residents and                   
 nonresidents earning income in Alaska based on a percentage of what           
 they pay the federal government.                                              
                                                                               
 "Starting in 1997, the tax would be five percent of a taxpayer's              
 federal income tax liability if that is not more than $20,000, and          
 10 percent if the taxpayer's federal income tax liability is over             
 $20,000.                                                                      
                                                                               
 "Under my proposal, the tax rate would go up five percent in 1998,            
 and would level off in 1999 after another five percent increase.              
                                                                               
 "Taxing a flat percentage rate of the federal tax liability is not          
 new to Alaska.                                                                
                                                                               
 "Such taxes were in effect at varying rates, between 10 percent and           
 16 percent, from 1949 to 1963, and again in 1965.                             
                                                                               
 "How much revenue would this bill generate?                                   
                                                                               
 REPRESENTATIVE MOSES said the estimate so far from the Department             
 of Revenue was $22.4 million the first year.  He continued to read            
 the sponsor statement into the record.                                        
                                                                               
 "nonresidents would pay just over half of that, or $11.3 million.           
                                                                               
 REPRESENTATIVE MOSES stated again that was one-half of what would             
 be paid by nonresidents, or money that the state was not receiving            
 now.  He further said it was only fair the nonresidence paid for              
 the services they received while in Alaska.  He cited in his                  
 community the police force doubled because of the transient and               
 seasonal workers.  He continued to read the sponsor statement into            
 the record.                                                                   
                                                                               
 "Is this a big enough amount?"                                                
                                                                               
 TAPE 96-11, SIDE A                                                            
 Number 0000                                                                   
                                                                               
 REPRESENTATIVE MOSES replied it was not a big amount compared to              
 the fiscal gap.  He continued to read the sponsor statement into              
 the record.                                                                   
                                                                               
 "Why doesn't my bill raise the $200 million that some have                    
 estimated an income tax to generate?                                          
                                                                               
 "Two reasons.                                                                 
                                                                               
 "First, the tax rate in house bill 449 is lower, at least for the             
 first two years, than the tax rate in the bill on which the higher            
 revenue estimate was based.                                                   
                                                                               
 "The $200 million estimate was for a bill, introduced three years             
 ago, that would have imposed a 15 percent tax rate on a taxpayer's          
 federal income tax liability.                                                 
                                                                               
 "Second, my bill provides a real and personal property tax credit           
 a taxpayer may claim."                                                        
                                                                               
 REPRESENTATIVE MOSES commented that was the reason nonresidents               
 would pay over 50 percent the first year because it was a long-shot           
 that nonresidents owned real or personal property to receive the              
 tax credit.  He also said the earlier bill did not address this               
 issue.  He cited he would like to see this extended to the small              
 business owners to help compete with the national chains.  He felt            
 they needed a break.  The national chains were good for the                   
 consumer, he alleged, but only in the short-run.  He further                  
 stated, for more information on how much HB 449 might generate, how           
 much it might cost to administer, and some of the technical aspects           
 of the measure, he deferred to the Department of Revenue.  He said            
 there were other tax proposals such as a sin tax that was                     
 uncontrolled due to the large number of nonresidents.  He                     
 reiterated over 50 percent in the first year would be paid by                 
 nonresident workers.  He also cited there were thousands of part-             
 time residents, such as fishermen, of which the industry was                  
 oriented towards Seattle.  Consequently, they were contributing to            
 the state of Washington rather than the state of Alaska.                      
 Representative Moses commented the trickle down approach was not              
 working so again wondered why an income tax did not exist.  He said           
 proposing such a bill affected him personally and cited $1,000                
 worth of damage was done to his store because of the marine fuel              
 tax.  He further said a large portion of his customers in Unalaska            
 were nonresidents.  Therefore, HB 449 was a detriment to his                  
 business, and he would probably loose votes.  In conclusion, he               
 said he would be happy to answer any questions.                               
                                                                               
 Number 0522                                                                   
                                                                               
 REPRESENTATIVE GREEN cited a cabin fire example where so much fuel            
 had been added requiring a fire extinguisher to sequester the fire            
 back into the fireplace.  He said it was the wrong direction to use           
 gasoline now to try to control the government.  He stated he                  
 championed Representative Moses' idea to take advantage of the                
 nonresidents.  He cited the slope workers who made a lot of money             
 and lived in another state.  Representative Green said an avenue              
 was needed to prevent that because the state provided services for            
 the period of time they were here.  He further said it was often              
 more service per capita than required from the full-time residents.           
 However, adding an income tax was not responsible until state                 
 spending was under control.  He said he was not in favor of HB 449            
 at this time.                                                                 
                                                                               
 Number 0680                                                                   
                                                                               
 REPRESENTATIVE WILLIS commended Representative Moses for                      
 introducing HB 449.  He said it took a lot of courage.  He stated             
 he did not want to see a piece-meal revenue enhancement approach.             
 He wondered, as Representative Moses was part of the majority, if             
 the majority was establishing an overall plan that addressed budget           
 cuts and encompassed revenue enhancements such as an income tax.              
                                                                               
 Number 0795                                                                   
                                                                               
 REPRESENTATIVE MOSES replied the most comprehensive and fairest tax           
 was the personal income tax, and hoped it would be part of the                
 over-all plan.  He felt he was in the extreme minority right now              
 proposing such a bill.  Representative Moses stated the budget cuts           
 could cause a minor or major recession in the state.  He also said            
 the state did not know about the federal budget cuts and how it               
 would affect Alaska.  He further stated the entire fishing industry           
 was in the doldrums.  He alleged the state was still benefiting               
 from the large capital expenditures in fiscal year 1994.  He                  
 reiterated there would probably be a big recession in Anchorage               
 because it was the service center.  A tax did not always help the             
 economy, he said, but it would contribute millions of dollars to              
 the state by requiring nonresidents to contribute.  He also cited             
 foreigners and some full-time residents sent every nickel made to             
 a foreign country because they had it so good here in Alaska which            
 did not trickle down into the economy.  This, he asserted, was a              
 serious problem.                                                              
                                                                               
 Number 0959                                                                   
                                                                               
 REPRESENTATIVE OGAN said he admired Representative Moses' courage             
 to introduce HB 449.  He stated appropriate cuts needed to be made            
 before introducing new taxes.  He said his constituents felt there            
 would be no motivation to cut the budget if new money was generated           
 by taxes.  He said the people believed there was a bloated state              
 government and the legislature was not interested in controlling it           
 but only new revenue sources.  He agreed with the arguments                   
 regarding nonresidents.  He said it could be argued in the case of            
 oil workers that the employer paid a disproportionate amount of               
 state taxes.  He said the fairest tax was a sales tax because it              
 taxed the workers and non-workers according to spending.  He also             
 said it did not penalize against spending or saving as an income              
 tax would.  He said he did not support HB 449 and would not vote it           
 out of the committee.                                                         
                                                                               
 Number 1071                                                                   
                                                                               
 CHAIR JAMES said ultimately a state income tax was needed, and the            
 income tax was the fairest tax imposed.  A sales tax, she stated,             
 should be reserved for the municipalities and local governments to            
 receive money.  She said everybody wanted to make exemptions to the           
 sales tax law creating an accounting nightmare born by the business           
 person.  She also said she was concerned about the timing.  She               
 said state spending must be reduced, but at the same time there               
 were many capital needs in Alaska that should not be ignored.  She            
 further said nonresidents were not treating residents fairly and              
 most believed a tax should be collected from them.                            
 Philosophically, she believed an income tax would create a more               
 interested and scrutinizing public.  She said she did not feel the            
 threat between cutting and spending.  She did not want to cut, to             
 simply cut, but a serious evaluation was needed to determine that             
 which validated continued funding.  She also said Representative              
 Moses was brave to introduce HB 449.  She asserted it was time to             
 start talking about it nonetheless.  In conclusion, she said she              
 would like to hear from the Department of Revenue.                            
                                                                               
 Number 1272                                                                   
                                                                               
 REPRESENTATIVE IVAN said he had observed first hand the nonresident           
 and seasonal workers in Unalaska, and understood the concerns of              
 Representative Moses.  He said Alaska was so big that it required             
 a unique approach to solve the problems.  In conclusion, he stated            
 he agreed with some of Representative Moses' philosophy.                      
                                                                               
 Number 1355                                                                   
                                                                               
 CHAIR JAMES said politicians liked to spend money, and her fear of            
 adding money to the pot would not allow the budget to be                      
 scrutinized.  She suggested finding the level of spending and use             
 the reserves to take care of the gap.  She alleged there was not a            
 gap if all the earnings were included such as the permanent fund              
 earnings.  However, touching the permanent fund was political                 
 suicide.  In conclusion, she said, as economic activity increased,            
 the only way to factor in the added necessary government services             
 was to tap into the income to provide for those needed services.              
 She did not know when that would be needed but it was good to talk            
 about it now.                                                                 
                                                                               
 Number 1455                                                                   
                                                                               
 REPRESENTATIVE MOSES said there would be drilling in the Arctic               
 National Wildlife Refuge (ANWR) if the state did not have $18                 
 billion dollars in the bank.  He further said Congress did not have           
 sympathy for the state of Alaska because there was not a tax in               
 some form.  He further said there was a chance the state's highway            
 fund would decreased from $200 million to $50 million.  He said if            
 he was a Congressman from the lower forty-eight he would be very              
 envious of Alaska and vote to restrict any appropriations.  He                
 alleged the majority of the states were jealous of Alaska.                    
 Representative Moses also said the candidates had psyched the                 
 public into thinking the solution was to cut the budget and no                
 taxes were needed.  The public was gullible, he asserted.  He also            
 said the legislature did not cut the budget appropriately.  He said           
 he campaigned in 1992 on the fact an income tax was needed.                   
                                                                               
 Number 1548                                                                   
                                                                               
 CHAIR JAMES reiterated she wanted to hear from the Department of              
 Revenue.  She stated she was not ready to pass HB 449 from the                
 committee, but this was an opportune time to discuss the issue of             
 an income tax.                                                                

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