Legislature(2001 - 2002)

02/06/2001 03:30 PM Senate STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
               SJR 12-ELIMINATE MARRIAGE TAX PENALTY                                                                        
                                                                                                                                
SENATOR LEMAN delivered the following sponsor's statement.                                                                      
                                                                                                                                
SJR  2  expresses   the  Legislature's  support  for   reducing  the                                                            
imbalance  in  the  federal  Tax Code  that  taxes  married  couples                                                            
disproportionately  more  than unmarried  couples  earning the  same                                                            
level of income.                                                                                                                
                                                                                                                                
The marriage penalty impacts  millions of married couples. According                                                            
to the  Congressional Budget  Office (CBO),  under current  tax laws                                                            
married couples  pay an average  of $1,480  more in taxes each  year                                                            
than  two unmarried  people.  Between  66  and 68,000  Alaskans  are                                                            
affected.                                                                                                                       
                                                                                                                                
The  two  primary  penalties  are the  standard  deduction  and  the                                                            
graduated rate  structure. First, the standard deduction  amount for                                                            
joint filers  is not twice  that for those  claiming single  status.                                                            
This means an unmarried  couple can deduct more of their income than                                                            
a  married  couple.   Second,  income  rate  structures   that  push                                                            
taxpayers into higher brackets  are less than twice for joint filers                                                            
than for  those claiming  single status. This  means that a  married                                                            
couple may  be forced into  a higher tax  bracket than an  unmarried                                                            
couple earning the same combined income.                                                                                        
                                                                                                                                
Congress attempted to deal  with the marriage penalty last year when                                                            
it passed  the "Marriage  Tax Relief  Reconciliation  Act of  2000."                                                            
This would  have provided  tax relief to  married couples  penalized                                                            
under current  tax laws, but President  Clinton vetoed the  measure.                                                            
Because  President  Bush  and  his  Cabinet  have  expressed  strong                                                            
support  for reducing taxes,  Congress should  revisit the  marriage                                                            
penalty.                                                                                                                        
                                                                                                                                
SENATOR LEMAN  said that Mr. Bob Sremak,  CPA, was online  to answer                                                            
any specific questions  about the standard and graduated deductions.                                                            
                                                                                                                                
CHAIRMAN THERRIAULT asked Mr. Sremak if he had any testimony.                                                                   
                                                                                                                                
MR. BOB SREMAK said that  he had some general comments. He said that                                                            
this was  a complex issue  that is not income  specific; both  upper                                                            
and  lower income  couples  are affected.  Any provisions  that  are                                                            
sensitive  to  earned  income   or adjusted   gross  income  may  be                                                            
impacted. An example is  earned income credits where the more earned                                                            
income  credits on a  return, the  lower the  possibility the  filer                                                            
will  qualify for  the earned  income credit.  Other  areas such  as                                                            
phase out for individual  retirement accounts, child tax credits and                                                            
interest deduction  for interest on college education  are affected.                                                            
It's an inequitable area that must be dealt with.                                                                               
                                                                                                                                
MR.  SREMAK  said  that  anyone  with  children  under  age  14  and                                                            
receiving a  permanent fund check  could have part of that  taxed at                                                            
the parent's rate.  As a married couple, roughly $43,000  of taxable                                                            
income  is the  limit for  staying in  the 15  percent tax  bracket.                                                            
After that, you move into  the 28 percent bracket. It's possible for                                                            
children under  14 years old to be  in the 28 or 31 percent  bracket                                                            
for the permanent fund  dividend. It's tagged onto what the parents'                                                            
incremental rate becomes.                                                                                                       
                                                                                                                                
CHAIRMAN THERRIAULT asked  if the tax was applied to the entirety of                                                            
the permanent fund check because it was unearned income.                                                                        
                                                                                                                                
MR. SREMAK  said  no, it's  phased in.  Basically,  any income  over                                                            
$1,400 would be  taxed at the parents' highest rate.  Generally, the                                                            
first $700 of  unearned income for someone under 14  years old isn't                                                            
taxed,  the next  $700  is at  15 percent,  and then  anything  over                                                            
$1,400  is taxed at  the highest  of either the  child's or  parents                                                            
rate.                                                                                                                           
                                                                                                                                
CHAIRMAN THERRIAULT  asked for questions.  There were none.  He then                                                            
asked for a motion.                                                                                                             
                                                                                                                                
SENATOR PHILLIPS  made a motion to  move SJR 12, as written,  to the                                                            
next committee of referral.                                                                                                     
                                                                                                                                
CHAIRMAN  THERRIAULT  noted  that  there  was  a  zero  fiscal  note                                                            
attached.                                                                                                                       
                                                                                                                                
He asked for any  opposition. There being none, the  bill and fiscal                                                            
note were forwarded to the next committee.                                                                                      

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