Legislature has yet to pass state budget
With the task still ahead to pass the operating and capital budget, the 29th Alaska Legislature went beyond its 90-day session that ended on Sunday. As Legislators go into overtime – an additional 31 days of extending the current session would be within the constitutional frame — they also have to pack up their offices due to scheduled construction work that began on Monday at the capitol in Juneau.
With a $4 billion budget deficit hanging over Alaskan’s heads, the legislature is expected to chart the path into a viable fiscal future by budget reductions, finding new revenue streams, restructuring the Permanent Fund and establishing ‘broad-based’ tax system, as Governor Bill Walker called it.
Walker introduced a plan called the New Sustainable Alaska Plan, which proposed to reduce the annual Permanent Fund dividend paid out to eligible Alaskans to a cap of $1,000, to levy a personal income tax at 6 percent of one’s federal tax liability and to increase existing taxes on alcohol, tobacco and extractive industries.
The Rasmuson Foundation commissioned a report by the Institute on Taxation and Economic Policy to look at the Governor’s proposal. The report found that the New Sustainable Alaska Plan includes a “bold package of revenue measures”, but also that the plan has a “starkly uneven impact on Alaska households at different income levels.” “Specifically, the plan asks far more of low- and middle-income families than it does from wealthier families that are better able to absorb a reduction in their incomes,” the report’s conclusion reads. The authors suggest that one way to remedy “this shortcoming would be to rebalance the plan so that it generates more of its revenue through progressive personal income taxes, and less of its revenue from regressive cuts to the Permanent Fund dividend. This type of restructuring could pave the way for a fiscal solution that better serves Alaskans of all income levels.”
The report said that the centerpiece of the governor’s plan is the reduction of the annual PFD, the same amount is paid out to all eligible Alaskans regardless of income earnings, and it would hit families of limited means hardest that rely on the PFD. The report looked at three different models how an income tax could be structured. The first model is a structure that was proposed by Rep. Paul Seaton in 2015 and would implement a tax that would equal 15 percent of the federal income tax liability, plus a surcharge of 10 percent for long-term capital gains income. The second model looked at the impact it would have if doubling the governor’s proposed income tax to 12 percent of the federal tax liability A third model examined a 6.4 percent tax rate on the portion of income above $100,000 of a single taxpayer and above $200,000 for married couples. “Any of these options would, at a minimum, reduce the regressivity of the governor’s proposal,” the report finds. “ In the case of Rep. Seaton’s plan, implementing an income tax of this size and scaling back the governor’s proposed reduction to the dividend would actually result in a roughly proportional impact throughout most of the income distribution.”
Last week, the House Finance committee brought a different plan to the table in form of House Bill 250, “An Act relating to the taxation of income of individuals, repealing tax credits applied against the tax on individuals under the Alaska Net Income Tax Act.”
The act proposes a six percent tax of the taxpayer’s total federal income tax. Nonresidents of Alaska are also to pay income taxes if the income is from a source in the state. The act requires an employer to deduct and withhold “an amount of tax computed in a manner to approximate the amount of tax due on those wages, salaries or crew shares” and to “remit to the department the tax withheld” and “the employer is liable for the payment of the tax required to be deducted and withheld” but an employer is not liable to any individual for the amount of payment. The act would take effect January 1, 2019, two years later than Governor Walker wanted an income tax see take effect.
The House and the Senate passed different versions of the budgets in their respective bodies. It is now up to a conference committee to go through both versions of the budgets to find a compromise and to decide line item by line item. The conference committee consists of co-chairs Senator Pete Kelly (R-Fairbanks) and Representative Mark Neuman (R-Wasilla) and Rep. Steve Thompson (R-Fairbanks), Rep. Les Gara (D-Anchorage), Senator Anna MacKinnon (R-Anchorage) and Senator Lyman Hoffman (D-Bethel).
As of press time on Tuesday, the conference committee met to further negotiate the operating budget. According to a motion sheet – a spreadsheet where the conference committee marks their decision whether they went on certain line items with the House or Senate proposal — addressing appropriations for Juvenile Justice, the committee has decided to go with the House Bill, which included funding the Nome Youth Facility with a caveat that a transition is to take place and a plan is to be developed. The motion sheet reads that “it is the intent of the legislature that the Division on Juvenile Justice collaborate with the community of Nome and with tribal and public health organizations to transition the Nome Youth Facility from state to local ownership; and to deliver to the legislature by January 17, 2017 a plan for utilizing the facility to better meet regional needs for youth correctional, health and rehabilitative services.”