Legislature(1995 - 1996)
02/08/1996 08:00 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
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.