HB 124-INCOME TAX ON INDIVIDUALS & FIDUCIARIES Number 1410 CHAIR JAMES announced the next order of business is 2d SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 124, "An Act relating to the taxation of income and providing a credit for certain property taxes, and permitting the legislature to use certain income tax proceeds to make appropriations for public schools." CHAIR JAMES explained that 2d SSHB 124 is greatly changed from the last time the committee discussed the bill. It is still a flat income tax and a selected income tax because it only taxes W-2 earnings, business profit/loss, rents, royalties, partnerships, subchapter (S) corporations, trusts and farming. However, it does not tax retirement income, capital gains, dividends or investments. She noted that she had exempted investments from the flat income tax to encourage investments because she believes investments in Alaska serve to provide jobs for Alaskans. She stated that the Department of Revenue had prepared a fiscal note for 2d SSHB 124. In preparing 2d SSHB 124, she said she not only wanted to target specific income but also wanted to make sure that Alaska had its own tax, and not "piggyback" on to federal tax. Number 1610 CHAIR JAMES indicated the $12,500 threshold is applied to each individual in Alaska and that 2d SSHB 124 is a very simple tax, easy to administer and easy to pay. It almost excludes the need for auditing because any auditing that does arise will be accomplished by the federal government. One important change, she said, is that an individual is required to pay tax on the amount that was required to be reported, not on what an individual actually did report. This closes a loophole in the original bill for people who do not report all their income correctly. REPRESENTATIVE KERTTULA asked whether investments are exempt. CHAIR JAMES answered in the affirmative. Number 1819 REPRESENTATIVE KERTTULA asked if a straight salary is all that would be counted toward the $12,500 threshold. CHAIR JAMES replied in the affirmative and specified that if a person only earned wages, that is all that would be taxed; there would be no tax on stocks or retirement income. REPRESENTATIVE KERTTULA said she saw a problem with that very thing. She feels that people who are wealthy enough to have stocks normally would have an easier time paying this tax than people who are on straight wages. CHAIR JAMES responded that most people who have stocks are also making money in other ways. It is her opinion that wealthy people invest their money and create jobs for people who do not have much money. She believes 2d SSHB 124 will result in a tax collection of $250 million, but she does not have the figures yet to prove her belief; the Department of Revenue is still working on producing a valid fiscal note. Her personal belief is that within the next three years, the legislature will have to impose some form of tax on Alaskans. In presenting 2d SSHB 124, she proposes to introduce the idea to Alaskans and get them to think about the best way to impose a fair tax; she also hopes to avoid a complicated tax law or a tax that simply "piggybacks" onto the federal income tax. Number 2071 REPRESENTATIVE GREEN inquired as to the status of the property tax credit that had been offered with the original HB 124. CHAIR JAMES answered that the property tax credit and school tax are no longer part of 2d SSHB 124. Number 2215 REPRESENTATIVE KERTTULA made a motion to adopt the proposed CS for 2d SSHB 124, version 1-LS0232\N, Kurtz, 2/15/00, as a work draft. There being no objection, it was so ordered. [HB 124 was held for further discussion.]