Legislature(2021 - 2022)DAVIS 106
04/15/2021 11:30 AM House WAYS & MEANS
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Alaska Budget Choices | |
| Presentation: Alaska's Tax Burden | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
April 15, 2021
11:34 a.m.
MEMBERS PRESENT
Representative Ivy Spohnholz, Chair
Representative Adam Wool
Representative Andy Josephson
Representative Calvin Schrage
Representative Andi Story
Representative Mike Prax
Representative David Eastman
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Dan Ortiz
COMMITTEE CALENDAR
PRESENTATION: ALASKA BUDGET CHOICES
- HEARD
PRESENTATION: ALASKA'S TAX BURDEN
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
CHERYL FRASCA, Co-Chair
Fiscal Policy Study Group
Commonwealth North
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation, titled
"Budget Choices - What Alaskans are Saying," dated 4/15/21.
REPRESENTATIVE DAN ORTIZ
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Asked questions during the presentation by
Commonwealth North.
ROSE FOLEY, Staff
Representative Ivy Spohnholz
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions during the presentation
by Commonwealth North, on behalf of Representative Spohnholz.
JARED WALCZAK, Vice President of State Projects
Center for State Tax Policy
Tax Foundation
Washington, D.C.
POSITION STATEMENT: Provided a PowerPoint presentation, titled
"Navigating Alaska's Fiscal Crisis."
ACTION NARRATIVE
11:34:23 AM
CHAIR IVY SPOHNHOLZ called the House Special Committee on Ways
and Means meeting to order at 11:34 a.m. Representatives Wool,
Josephson, Story, Prax, Eastman, and Spohnholz were present at
the call to order. Representative Schrage arrived as the
meeting was in progress. Also present was Representative Ortiz.
^PRESENTATION: Alaska Budget Choices
PRESENTATION: Alaska Budget Choices
11:35:29 AM
CHAIR SPOHNHOLZ announced that the first order of business would
be a presentation on balancing the budget by Cheryl Frasca,
Commonwealth North.
11:36:22 AM
CHERYL FRASCA, Co-Chair, Fiscal Policy Study Group, Commonwealth
North, introduced a PowerPoint presentation, titled "Budget
Choices What Alaskans are saying," [hard copy included in the
committee packet]. She informed the committee about
Commonwealth North and its Fiscal Policy Study Group. She
highlighted the Alaska Budget Choices website, www.akbudget.com,
which was created as a tool to engage Alaskans in discussing the
tradeoffs involved in balancing the budget. Today's
presentation, she said, would provide an overview of the 2,008
responses received from the website.
11:38:44 AM
MS. FRASCA directed attention to slide 2, which read as follows
[original punctuation provided]:
CWN Asked Alaskans . . .
What choices they would make to balance $1.3 billion
difference between expected revenue to pay for current
year state services
Presented choices for:
10 different sources for revenue
Spending on 18 state programs
Ability to make other suggestions
Goal:
Recognize balancing budget is more than a
spread sheet
Each choice requires trade-offs that
will need to be made to bring
spending in line with recurring
revenue
Data presented reflects 2,008 responses
received at www.akbudget.com through
April 13, 2021
MS. FRASCA explained that wwww.akbudget.com featured a video
that summarized the state's current fiscal condition. She
turned to slide 3, which categorized the responses by geographic
location. She noted that the underrepresented areas were the
Kenai Peninsula and the Mat-Su, indicating that the data was not
representative of Alaska's population, as participation was
voluntary. She continued to slide 4, which read as follows
[original punctuation provided]:
Spending Choices . . .
? Maintain current funding
? Early learning
? Medicaid
? Senior Benefits and Pioneer Homes
? Mental Health & Substance Misuse and Children's
Services
? Public Safety
? Prosecutors & Public Defenders and Court System
? Fish and Game and Natural Resource Management
? Reduce funding
? Governor's office
? Legislature
MS. FRASCA explained that the data reflected the areas in which
Alaskans wanted to see the current funding maintained and
reduced. Slide 5, which highlighted additional spending
choices, read as follows [original punctuation provided]:
More Spending Choices . . .
? K-12 funding
? 31% said maintain current funding
? 35% said to increase
? 35% said to decrease
? University
? 39% proceed with planned $20 million cut
35% said reinstate some of the cuts
? 25% maintain current funding
? Transportation
? 31% Transition ferry to self-sustaining model
? 29% maintain current funding
11:43:01 AM
REPRESENTATIVE STORY questioned whether the people who selected
"maintain current funding" for K-12 programs understood that
doing so would result in changes to class size and a reduction
in services.
MS. FRASCA said no, there was no accompanying narrative that
provided that information. Nonetheless, she believed that some
people may have intuitively understood that.
11:45:08 AM
MS. FRASCA directed attention to slide 6, which read as follows
[original punctuation provided]:
Spending Choice: Permanent Fund Dividend
Use statutory formula Spend $1.2 billion
Pay last 3 years of dividends Spend $2.2 billion
Pay out same amount next year No change
Suspend dividends for now Save $680 million
MS. FRASCA continued to slide 7, highlighting that 12 percent of
respondents preferred the statutory formula; 12 percent
preferred a payout of the last three years of dividends; 42
percent preferred maintaining the current dividend amount; and
34 percent preferred suspending dividends until the state could
afford it.
11:47:17 AM
MS. FRASCA turned to slide 8, which read as follows [original
punctuation provided]:
Revenue Choices . . .
? Maintain current tax structure
Corporate income, commercial fisheries taxes
? OK with varying level of increase
? Mining license 44% maintain; 55% ok with varied
increases
? Oil and gas production 43% maintain; 58% ok
with varied increases
? Excise 39% maintain; 61% ok with varied
increases
? Fuel 41% maintain; 59% ok with varied increases
OK with a lottery
? 39% said no
? Combined 61% okay with various forms of games
? Also asked about:
? Income tax
? Sales tax
? Permanent Fund earnings
11:48:28 AM
MS. FRASCA reviewed the revenue choices for an income tax on
slide 9, which read as follows [original punctuation provided]:
2% flat tax no exemptions + $440 million
4% flat tax no exemptions + $880 million
10% progressive tax + $350 million
20% progressive tax + $700 million
No income tax No additional revenue
MS. FRASCA discussed the responses on slide 10. The data
suggested that 13 percent of respondents preferred a 2 percent
flat tax; 6 percent preferred a 4 percent flat tax; 21 percent
preferred a 10 percent progressive tax; 12 percent preferred a
20 percent progressive tax; and 48 percent preferred no income
tax.
11:49:50 AM
MS. FRASCA reviewed the revenue choices for a sales tax on slide
11, which read as follows [original punctuation provided]:
1% sales tax + $250 million
2% sales tax + $500 million
4% sales tax + $1 billion
6% sales tax + 1.5 billion
No sales tax No additional revenue
MS. FRASCA detailed the responses on slide 12, indicating that
20 percent of respondents preferred a 1 percent sales tax; 20
percent preferred a 2 percent sales tax; 11 percent preferred a
4 percent sales tax; 6 percent preferred a 6 percent sales tax;
and 43 percent preferred no sales tax.
11:50:49 AM
MS. FRASCA continued to slide 13, which read as follows
[original punctuation provided]:
Revenue Choice: Permanent Fund Earnings
Take additional 0.5% + $300 million
Take additional 1% + $600 million
Take additional 1.5% + $900 million
Follow existing payout formula No additional
revenue
MS. FRASCA reviewed the responses on slide 14. She relayed that
17 percent of respondents preferred taking an additional 5
percent of earnings; 11 percent preferred taking an additional 1
percent of earnings; 14 percent preferred taking an additional
1.5 percent of earnings; and 58 percent preferred following the
existing payout formula.
11:51:58 AM
MS. FRASCA noted that in a perfect world, [the budget balancing
tool] would have been the basis for community-based discussions,
as opposed to a virtual exercise. She expressed her hope that a
similar tool could be used to initiate future discussions if
Alaska's fiscal issues were to continue.
11:52:59 AM
REPRESENTATIVE PRAX asked whether the survey tool required a
balanced budget.
MS. FRASCA answered no, the choices could still be submitted
with an unbalanced budget. She reiterated that tool was
intended to be an educational instrument for Alaskans. She
expressed her hope that if people were challenged by the
process, it would highlight the difficulties of balancing the
budget. She noted that 55 percent of respondents submitted a
balanced budget.
11:54:36 AM
REPRESENTATIVE STORY asked whether Commonwealth North had
considered performing a study with representative sampling.
MS. FRASCA responded no, pointing out that Commonwealth North
was a nonprofit organization. She reiterated that the survey
tool was intended to be an educational process for the user, as
opposed to a statistical study.
REPRESENTATIVE STORY acknowledged that it would be expensive;
nonetheless, she reiterated her interest in seeing statistical
data.
11:56:04 AM
REPRESENTATIVE WOOL said he found the responses on the income
tax interesting, as a more progressive income tax was favored
over a flat tax. He sought to confirm that the progressivity
was "baked into" the income tax calculation because it was based
on a percentage of the federal income tax.
MS. FRASCA confirmed.
CHAIR SPOHNHOLZ clarified that 52 percent supported some form of
income tax and 57 percent supported some form of sales tax.
11:58:34 AM
REPRESENTATIVE PRAX surmised that the majority of respondents
were senior citizens. He opined that the exercise was a
valuable educational tool, however, he cautioned against basing
policy decisions on the findings, as policy making required a
more scientific approach.
MS. FRASCA replied, "My only snide remark would be, I don't
think three minutes or two minutes of testimony in front of
Finance Committee is a scientific approach either."
CHAIR SPOHNHOLZ shared her understanding that the process was
not specifically weighted towards senior citizens. She pointed
out that more "mature" people might have had extra discretionary
time and could be more interested in the topic compared to
people in their early twenties. She said she would not be
surprised if participation was skewed on the "mature" side.
12:00:41 PM
REPRESENTATIVE WOOL asked whether the age of respondents was
collected.
MS. FRASCA answered no, adding that zip code was the only
identifier that was collected.
CHAIR SPOHNHOLZ speculated that Representative Prax had presumed
that the pool of respondents was weighted towards senior
citizens because the responses favored services for the elderly.
However, she contended that she would not make that same
assumption.
12:02:11 PM
REPRESENTATIVE DAN ORTIZ, Alaska State Legislature, returned to
slide 3 and asked why certain geographic areas had a higher
response rate than others.
MS. FRASCA conveyed that no analysis had been performed on the
geographic distribution. She noted that legislators had been
asked to encourage their constituents to participate.
Additionally, Commonwealth North worked with the Alaska
Municipal League (AML) and encouraged community participation at
its annual meeting.
REPRESENTATIVE ORTIZ inferred that Commonwealth North had
attempted to work with different municipal groups. He asked
whether that attempt was geographically balanced.
MS. FRASCA reiterated that they had worked with AML, so
statewide communities that were AML members had equal access.
She recalled participating in two radio talk shows in Anchorage
and Kenai as well.
12:05:01 PM
REPRESENTATIVE JOSEPHSON said he found the budget tool very
useful and informative. He added that it reminded him of the
difficulty with polling. He shard his belief that politicians
write their own narrative and suggested that unless the poll
results were 80 percent or higher, an elected official would not
believe what they were reading.
CHAIR SPOHNHOLZ opined that the tool was a useful tool for
educating people about the fiscal gap. She recalled that Ms.
Frasca had stated that only 55 percent of respondents submitted
budgets that were balanced, which indicated that some people [45
percent of respondents] didn't want to make the tough choices.
She emphasized that these findings were not a representative
sample; nonetheless, she said she found the support for new
revenue surprising. She shared her belief that sometimes,
politicians needed to make the tough decisions in the best
interest of the state. Further, she stated that educating the
public on these issues was part of her objective as chair of the
House Special Committee on Ways and Means.
12:09:34 PM
REPRESENTATIVE WOOL, in response to Representative Josephson's
comments regarding poll percentages, pointed out that many
legislators were elected with 51 percent of the vote;
consequently, he believed that 80 percent was "pushing it."
Additionally, he opined that attempting to balance the budget
with the tool did not demonstrate the difficulty of making those
choices in reality. He said it would be interesting if the tool
required users to balance the budget, as their choices may have
been different. He emphasized that the legislature had to
balance the budget, later adding that finding a balance between
revenue, services, and the dividend was difficult to navigate.
Finally, he concluded with the observation that 76 percent of
respondents were "okay" with either no PFD or a dividend of
$1,000, later adding "that's the 80 percent that Representative
Josephson might have been looking for."
12:12:11 PM
REPRESTATIVE PRAX asked whether the users' responses could be
found somewhere other than the PowerPoint presentation.
ROSE FOLEY, Staff, Representative Ivy Spohnholz, Alaska State
Legislature, stated that the responses could be found on BASIS.
^PRESENTATION: Alaska's Tax Burden
PRESENTATION: Alaska's Tax Burden
12:12:52 PM
CHAIR SPOHNHOLZ announced that the final order of business would
be a presentation on Alaska's tax burden by Jared Walczak, Tax
Foundation.
12:13:09 PM
JARED WALCZAK, Vice President of State Projects, Tax Foundation,
introduced a PowerPoint presentation, titled "Navigating
Alaska's Fiscal Crisis" [hard copy included in the committee
packet]. He began on slide 2, explaining that at its peak,
petroleum revenue, which totaled $8.9 billion, accounted for 93
percent of Unrestricted General Fund (UGF) revenue. He noted
that presently, nonpetroleum UGF revenue was projected to
contribute only 8.3 percent of the total projected UGF revenue
in FY 21 and 3.3 percent of total state revenue. He emphasized
that those percentages made Alaska unique, as most states had
far more revenue from other sources and were not as reliant on
the energy sector and investment income. He explained that
Alaska's situation was "both a blessing and a curse," as it had
allowed for low taxes and significant revenue, while being
highly volatile and in secular decline. He noted that many
states that had been heavily reliant on the energy sector were
looking to diversify to ensure that there were enough resources
to cover expenses.
12:16:46 PM
MR. WALCZAK advanced to slide 3 and stated that because of the
volatility associated with a heavy reliance on the oil and gas
industry, hedges, such as the Constitutional Budget Reserve
(CBR) and Statutory Budget Reserve (SBR), peaked at $19 billion
in FY 14 and have since decreased.
CHAIR SPOHNHOLZ clarified that contrary to slide 2, there was
currently $1 billion in the CBR, as opposed to $2 billion.
Additionally, she pointed out that per the Constitution of the
State of Alaska, oil was to be developed for the maximum benefit
of all Alaskans.
12:18:06 PM
MR. WALCZAK clarified that when he discussed taxes on the oil
and gas industry and the revenue from investment on that
funding, his intention was not to suggest that Alaska was
targeting a specific industry. He acknowledged that oil was a
resource that was "common" to all Alaskans. He emphasized that
his intent was to point out the challenges associated with a
heavy reliance on one industry, as opposed to highlighting an
"industry burden." He added that the good news for Alaska over
the past year was that investment income looked better than
expected because despite the pandemic, the stock market was up
and performing better than anticipated. He resumed the
presentation on slide 4, which illustrated the revenue
volatility. Further, he noted the significant amount of money
going to Alaska from the federal government for pandemic relief
funding.
12:21:26 PM
MR. WALCZAK directed attention to slide 6, which detailed
Alaska's total state revenue. He reviewed that non-petroleum
revenue accounted for $389 million while total state revenue was
at $11.6 billion. He reiterated that the ratio [of non-
petroleum revenue to total state revenue] was highly unique. He
highlighted that Alaska spent $15,972 per capita, whereas the
average state spent about $8,000 per capita. However, he
acknowledged that other states had fewer expenditures, as it was
more difficult to provide education and transportation, for
example, in such a large state with a low population density.
12:23:15 PM
REPRESENTATIVE JOSEPHSON pointed out that instead of counties,
Alaska had boroughs with limited taxing authority, for which the
State of Alaska provided for. He asked whether that would
factor into this discussion.
MR. WALCZAK said that would be addressed in a forthcoming slide.
He noted that like Alaska, most of New England lacked counties;
nonetheless, he acknowledged that it was important to look at
the state and local total combined, as the state was raising
much of the money that funded localities.
CHAIR SPOHNHOLZ contended that it had more to do with the fact
that the State of Alaska funded services that were paid for by
local communities in other states. She emphasized that Alaska's
government was structured differently than most other states.
12:25:31 PM
MR. WALCZAK resumed the presentation on slide 7, which provided
a comparison of the tax burden in all 50 states. He highlighted
that Alaska had the lowest tax burden in the country at an
effective rate of 5.8 percent of personal income. He explained
that Alaskans in the aggregate, which included both businesses
and individuals, sent 5.8 percent of their personal income to
the state in taxes. He noted that if Alaska were to adopt a
moderate rate income or sales tax, the state would still rank
among the lowest in terms of tax burden.
12:28:02 PM
REPRESENTATIVE WOOL asked whether the tax burden was inclusive
of local property tax, local sales tax, motor fuel tax, Alcohol
tax, cigarette tax, marijuana tax, and every other tax paid by
Alaskans.
MR. WALCZAK answered yes.
REPRESENTATIVE WOOL considered a scenario in which Alaska
imposed a 4 percent flat income tax. He sought to confirm that
the state's tax burden would not increase to 9.8 percent because
not everyone would pay the 4 percent. Instead, he assumed that
the tax burden would increase by some fraction of the 4 percent.
He asked if that was correct.
MR. WALCZAK confirmed. He estimated that if the state
implemented a 4 percent income tax, Alaska's tax burden would be
somewhere in the low 7 percent range.
12:29:51 PM
REPRESENTATIVE EASTMAN asked what the state's tax burden would
be if it took into account that "it's Alaskan's oil and energy
resources that are in fact being taxed."
MR. WALCZAK acknowledged that Alaskans owned the oil; however,
he clarified that the taxes were largely incurred by the
investors who exploit those markets. He explained that due to
the global price on oil, Alaska's taxes were changing the cost
of extraction, as opposed to changing the price of oil. He said
it could be argued that more oil in Alaska would be utilized if
Alaska had lower severance taxes; however, it was unclear
whether that would be to the benefit of Alaskans. He added that
it would not make sense to have a burdens analysis that assumed
that the taxes on oil and gas were burdening Alaskans, as the
ultimate owner of the resources.
REPRESENTATIVE EASTMAN asked whether any analysis distinguished
that fact about Alaska from the 49 other states.
MR. WALCZAK reiterated that it would not be relevant to a
burdens study, but the Tax Foundation did address Alaska's
distinct approach in a paper, he said.
CHAIR SPOHNHOLZ argued that oil taxes could be considered a
benefit to most Alaskans.
12:33:44 PM
REPRESENTATIVE SCHRAGE asked whether the reduction to the PFD in
recent years was factored into the effective tax burden rate for
Alaska.
MR. WALCZAK answered no, as the dividend was not considered a
tax provision. He noted that if the PFD were included as a
negative income tax, the overall number would be lower than 5.8
percent by a significant margin; however, it would have grown
over the last few years as the dividend had been reduced.
12:34:28 PM
REPRESENTATIVE WOOL asked what the tax burden rate would be if
the dividend had been considered a negative income tax.
MR. WALCZAK estimated that the effective tax burden would be
close to zero.
12:35:49 PM
MR. WALCZAK resumed the presentation on slide 8, which compared
sources of tax revenue in Alaska to the national average. He
noted that the state's corporate income tax was over double the
reliance in other states for several reasons: Alaska's corporate
income tax was more "aggressive" than other states and its
denominator was smaller. He pointed out that property tax
generated more at the state level than any other state because
some property taxes fell on pipelines. Additionally, he
highlighted that 65 percent of Alaska's tax revenue came from
the "other" category versus 9 percent nationwide due to
severance tax. He directed attention to the total revenue per
capita, noting that for state and local combined, Alaska's total
revenue was $21,064 per capita versus $14,209 nationally. He
reported that revenue from all sources at the state level was 68
percent higher than the national average per capita versus 11
percent higher when combining state and local.
12:40:57 PM
CHAIR SPOHNHOLZ asked what percentage for property tax would be
if the pipeline was excluded.
MR. WALCZAK said it would be "fairly modest." He noted that the
state was taxing residential property similarly to other states
- commercial property was not dramatically different either. He
reiterated that the significant revenue generation was from
pipeline property and other oil and gas production property,
which was either a non-factor or a small factor in other states.
12:42:21 PM
REPRESENTATIVE EASTMAN asked for further clarification on the
tax revenue from corporate income tax at the state level only.
MR. WALCZAK stated that it was a percentage of the state tax
revenue, as opposed to the rate of the tax itself. He explained
that Alaska generated slightly more revenue than the typical
state from corporate taxes, partly due to the oil and gas
industry paying higher effective rates in corporate taxes.
Additionally, Alaska had fewer provisions than other states had
structurally. He reiterated that Alaska's corporate income tax
was a slightly higher rate than the median and slightly broader
on its definitions of taxable income. Additionally, Alaska's
denominator was lower.
REPRESENTATIVE EASTMAN asked whether the 7 percent from property
tax at the state level included money going to local
governments.
MR. WALCZAK said this calculation relied on census data, which
in turn, relied on certifications from state and local
governments. He understood that it accounted for the state only
being a collector of that; therefore, placing it in the "local"
tally.
12:46:11 PM
MR. WALCZAK discussed "Alaska's Three Rs" on slide 9, which
highlighted three different ways the state could respond to the
revenue crisis: reallocations, reductions, and revenues. He
noted that in terms of fixed costs per capita, Alaska was 50-60
percent higher than the average as of 2018.
CHAIR SPOHNHOLZ interjected to point out that if Alaska were
divided in half, it would still be the top two largest states in
the U.S.
12:48:10 PM
MR. WALCZAK acknowledged that the state had made reductions;
further, that there was no way for Alaska to spend similarly to
other states. He proceeded to discuss states with sales tax on
slide 10. He noted that Alaska was one of five states that had
not adopted a statewide sales tax. He explained that most
states adopted a sales tax before Alaska statehood. He added
that if Alaska were to adopt its own, there was potential to
learn from the challenges that other had states faced. He
recalled that Mississippi was the first to adopt a sales tax in
1930, with most states copying that language and inserting minor
alterations. Slide 11 featured a graph of the percentage of
total personal consumption expenditures. He pointed out that
historically, services were often related to goods, which
changed over time as the economy became more service oriented.
He shared his belief that it would make sense to include
personal services in a sales tax.
12:51:42 PM
MR. WALCZAK discussed revenue implications of sales tax rates
and base options on slide 12. He explained that the broadest
possible base, which included all personal consumption that
included a transaction, could generate $500 million with a 1.6
percent sales tax. He noted that a sales tax this broad had not
been implemented in any state, as it would include all medical
services. If Alaska were to implement a sales tax, he
encouraged the consideration of a broad-based sales tax.
Further, he advised structuring it in a way that would be
relatively efficient, simple, neutral, and would generate
revenue from changes in the economy that could not be
anticipated presently.
12:53:36 PM
REPRESENTATIVE SCHRAGE asked whether the table on slide 12 was
ordered by priority or frequency of occurrence.
MR. WALCZAK said the effort was to reflect some sense of the
frequency with which each was exempted, as well as the political
difficulty of taxation. He added that there was no way to order
it objectively. He noted that physician's services of any kind
were only taxed in Hawaii and South Dakota.
12:55:00 PM
REPRESENTATIVE WOOL asked whether services weren't taxed at all
in some states.
MR. WALCZAK replied that many states began by defining the sales
tax base as tangible goods and adding select services. Every
state had at least some services, he said. He added that most
states did not include business-to-business transaction services
and often excluded professional services. He stated that
anything associated with both tangible property and a service
was more likely to be taxed, such as appliance installation or
car repair.
12:56:35 PM
REPRESENTATIVE WOOL sought to confirm that a contractor who
bought $10,000 in lumber at Home Depot for a home addition would
not be taxed; alternatively, a completed job for a client could
be taxed. He asked whether a home addition that cost $50,000
would be fully taxed as sales tax in most states.
MR. WALCZAK stated that most states would tax the materials and
approximately 15-20 states would tax the actual labor services.
12:57:25 PM
CHAIR SPOHNHOLZ returned attention to slide 12 and asked whether
the calculations were based on the sales tax being uncapped.
MR. WALCZAK answered yes, adding that the assumption was that
the full value of the goods/services was subject tax. He added
that in most states, that's how the sales tax worked with very
small exceptions. He further noted that many states had a cap
on automobiles; however, it would be unusual to have a cap on
anything other than vehicles.
12:58:15 PM
MR. WALCZAK resumed the presentation on slide 13, which listed
state sales tax collections as a percentage of personal
consumption expenditures (PCE). He reported that on average,
2.3 percent of personal consumption ended up as tax revenue,
which would yield $852 million. Slide 14 provided a graph of
states with a wage income tax by year. He pointed out that
Alaska was the only state that had repealed its state income
tax. Slide 15 listed income tax collections as a percentage of
adjusted gross income (AGI). On average, he said, the states
that had an income tax generated tax revenue worth 4.4 percent
of AGI. If Alaska were to follow suit, $925 million could be
raised, he noted. He relayed that if Alaska were to implement
either an income or a sales tax, the tax burden would remain
relatively low; alternatively, if both were adopted, the tax
burden would be in the "middle of the pack." He explained that
individual income taxes could be conceptualized as a tax on both
present and future consumption, while sales tax was a tax on
present consumption. Income tax, he said, fell on both labor
and investment. He continued to explain that an income tax
would reduce the return to savings and would also fall on small
businesses. Consequently, sales tax was more economically
efficient than income tax. He stated that some policy makers
liked the greater progressivity offered by an income tax as
opposed to sales tax; however, there were tradeoffs, as income
taxes had more of an effect on jobs and more economic
dislocation. He recalled a representative study, which found
that at the federal level, a cut of 1 percent of the average
income tax rate would raise GDP per capita by 1.8 percent.
Further, for every 1 percentage point on state income tax, there
were 0.2-0.4 percent fewer businesses. He reported that by
adopting both an average income and an average sales tax, Alaska
could raise an extra $2,435 per capita, which would make the
state's collections extremely high at 50 percent higher than the
national average.
1:03:35 PM
CHAIR SPOHNHOLZ sought to confirm that when Mr. Walczak was
discussing the adoption of both taxes, he was referring to the
national average in each a sales tax and an income tax.
MR. WALCZAK answered yes. He expounded that for this analysis,
he was considering the collection of revenue consistent with the
national averages based on shares of personal consumption and
shares of AGI.
1:04:53 PM
MR. WALCZAK reiterated that there many different ways to
generate this revenue. He emphasized that in many ways, these
options would always be a less significant source of revenue to
Alaska than they would be to most other states. He explained
that a sales tax would present an opportunity, but also a
coordination challenge because local government have the
authority to set their own rules. He said if Alaska were to
adopt a state tax, it would either become independent of the
local sales taxes or it would require a difficult negotiation
and discussion with local governments about coordination.
1:07:48 PM
CHAIR SPOHNHOLZ returned to slide 7 and pointed out that aside
from Alaska, New Hampshire was the only other state with neither
a sales tax nor income tax. She asked why the slide indicated
that New Hampshire's tax burden was 9.7 percent.
MR. WALCZAK stated that New Hampshire had two different
corporate taxes. He explained that New Hampshire was the
inverse of Alaska in that its government was devolved to the
local level. He reported that New Hampshire's local governments
were almost exclusively responsible for many services, such as
education and roads. He concluded that the state [New
Hampshire] had high municipal taxes, high corporate taxes, no
individual income tax, and no sales tax, which resulted in a tax
burden that was lower than the national average but higher than
Alaska's.
CHAIR SPOHNHOLZ recalled that Mr. Walczak had stated earlier
that if Alaska were to adopt either a sales or income tax, it
would still have one of the lowest tax burdens in the nation.
She asked whether Tennessee was the second lowest after Alaska.
MR. WALCZAK answered yes. He surmised that Alaska would remain
in the bottom three if either an average sales tax or income tax
was adopted; however, that would no longer be the case if both
were adopted.
1:10:17 PM
REPRESENTATIVE WOOL shared his understanding that New Hampshire
had a broad-based statewide property tax. He asked if that was
correct.
MR. WALCZAK clarified that New Hampshire had a limited statewide
property tax; however, the majority of property tax collections
was at the local level. He expounded that most of New
Hampshire's statewide property tax was taxing tangible personal
property, such as business equipment and machinery.
1:11:01 PM
REPRESENTATIVE SCHRAGE believed that Alaska needed a broad-based
revenue-generating measure with some form of taxation.
Additionally, he opined that Alaska's taxation policy was
fragmented, as the state had gone 40-plus years without a broad-
based tax. He inquired about other states that had transitioned
from a localized tax system to implementing a broad-based tax.
MR. WALCZAK said there weren't many examples, as there were only
nine states without an income tax and five state without a sales
tax. He said there had not been a situation in which neither
tax was in place and then one was adopted since the Great
Depression era. He noted that North Carolina was a state that
had shifted from a heavy reliance on several industries that
were not as economically relevant and transitioning to more
neutral, broader-based taxes. He emphasized that
diversification was important because it would provide greater
stability and help to maintain levels of spending if there were
a secular decline in energy revenues. He opined that a sales
tax would be more efficient and easier to administer for a
geographically large and sparsely populated state because there
would be far fewer taxpayers compared to an income tax.
CHAIR SPOHNHOLZ pointed out that every Alaskan would still be a
taxpayer with a sales tax; however, businesses across the state
would be involved in formally managing the remittance of the
sales taxes collected from individual Alaskans and tourists.
MR. WALCZAK agreed.
1:15:58 PM
REPRESENTATIVE EASTMAN pointed out that most of Alaska's state
revenue came from investment on the Alaska Permanent Fund. He
expressed concern that Mr. Walczak's analysis did not emphasize
that distinction enough.
MR. WALCZAK apologized if that's how it was conveyed in his
presentation. He said he was trying to emphasize reliance an
industry because it was important to understanding how burdens
were exported and the volatility of the tax code. He clarified
that he did not intend to comment on the ultimate ownership of
the resource. Nonetheless, he reiterated that resource
ownership had no effect on the burdens analysis.
REPRESENTATIVE EASTMAN opined that much of Mr. Walczak's
analysis assumed that Alaska was comparable other state, as
opposed to distinguishing that its current revenue was coming
from investment income.
MR. WALCZAK agreed that Alaska was highly unique. He
acknowledged that Alaska had a large permanent fund, which was
not comparable to any other state. He added that it was
something that the Tax Foundation tried to reflect in its
broader analysis.
1:20:00 PM
REPRESENTATIVE PRAX remarked, "all a tax fundamentally does is
take the decision away from the individual and put it into the
collective." He shared his belief that a number of Alaskans
thought that the resources and the permanent fund belong to
them, as opposed to politicians. He opined that it was not
"profitable" to make comparisons to other states, later adding
that in-migration and out-migration needed to be considered. He
cautioned against the implementation of a tax due to the
outmigration of residents in recent years.
CHAIR SPOHNHOLZ recalled that economic instability was one of
the drivers of the outmigration of people in recent years. She
stated that Alaska had always had a high population turn;
however, recently, the same number of people were leaving Alaska
every year and fewer people were coming. She opined that it was
complicated. Further, to those that said people would leave
Alaska if revenue measures were adopted, she asked "where would
they have to go where they wouldn't have some responsibility to
pay some sort of sales or income tax?" She likened paying a tax
to making a contribution for important services, such as public
safety, education, and plowed roads. She thanked Mr. Walczak
for his presentation.
1:24:21 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on ways and Means meeting was adjourned at
1:24 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| CWN Budget Choices Presentation 4.15.21.pdf |
HW&M 4/15/2021 11:30:00 AM |
|
| Tax Foundation Presentation v.2 4.15.21.pdf |
HW&M 4/15/2021 11:30:00 AM |
|
| CWN Budget Choices Report AMD 4.15.21.pdf |
HW&M 4/15/2021 11:30:00 AM |