The House majority introduced Friday its long-term deficit reduction plan. Some minority members are already declaring their intent to vote against it before it has received a single hearing.
HB 115 is a combination of an income tax and a restructuring of the Permanent Fund.
The bill would draw 4.75 percent of the Permanent Fund’s average value over a five-year period. This percent-of-market-value (POMV) draw should generate $2.3 billion, one-third of which would pay Permanent Fund dividends (PFDs). The remainder would fund government services.
“Time and again we have heard that our constituents want more than the bare minimum of government that can be sustained on our drastically depleted oil revenue,” House Finance Co-chair Paul Seaton (R-Homer) said in a press release. “Instead, they charged us with providing for quality education, essential infrastructure, and safe and healthy communities. This is what business leaders and economists have told us is crucial for job creation and a thriving economy; and it is what Alaskans who want to raise families and grow old here tell us is crucial to making the most of the state they love.”
The 4.75-percent POMV draw is more conservative than the 5.25 percent proposed by Gov. Bill Walker.
The smaller draw would keep more money in the Permanent Fund in the near-term, allowing it to grow and produce larger payouts in the future, according to testimony from Legislative Finance Director David Teal.
House Majority Says Income Tax Fairest Revenue Option, Offset by PFD
HB 115 is substantially similar to a bill Seaton introduced last year, HB 365, that received only one hearing.
Like that bill, HB 115 includes a 15-percent state income tax against a taxpayer’s federal tax liability. That equates to roughly 3.5 percent of income that is then deductible from federal income tax by those who itemize.
“Alaska is the only State without a state sales, income, or property tax,” Seaton noted in a sponsor statement last year. “An income tax will generate the greatest revenue in an equitable manner at the lowest administrative cost. Individual Alaskan contributions will not balance the budget alone, but are a necessity for a realistic fix along with additional cuts to expenditures.”
Walker introduced a six-percent income tax last year, but the bill went nowhere.
S corporations, which report gains and losses on personal income tax returns and therefore are not currently taxed in Alaska, would be taxed under HB 115.
The minimum income tax payment would be $25.
The bill also includes a ten-percent long-term capital gains tax.
Non-residents who work in Alaska would have their Alaska income taxed, contributing about 20 percent of the total collected.
“The Permanent Fund belongs collectively to all of us, and we should direct a portion of our common investment earnings towards the state services we all utilize. It is unfair, however, to rely exclusively on Alaskans’ shared savings when that represents a tax that hits Alaska’s children and families the hardest, while holding harmless our sizable out of state workforce,” House Speaker Bryce Edgmon (D-Dillingham) said in a statement.
The House majority expects the income tax to generate $655 million. Combined with the $1.5 billion for government from the POMV, HB 115 would reduce the deficit by about $2.2 billion.
PFDs would be larger under HB 115 than Walker’s proposal — about $1,100 — and Alaskans could have the State hold the portion of the PFD necessary to cover their state income tax liability. The balance would be treated as an income tax refund, if one is due.
A chart released with the bill shows that a married couple making $100,000 — the combined income of two people both earning slightly below the average Alaska wage — would be entitled to $339 after the PFD credit. A married couple with two children would be entitled to $881.
Teal cautioned House Finance members that mixing an income tax and a POMV would complicate the discussion, but House majority members see a comprehensive fiscal plan as necessary this year.
“[W]e have sought a balance that ensures that all Alaskans contribute, while avoiding unfairly burdening particular groups or regions,” Edgmon said.
House Minority Members Say Bill Introductions “Not Fair”
On Wednesday, the House majority introduced an oil tax bill that is estimated to bring in $100 million to $300 million more in revenue while also eliminating cashable tax credits. In concert with HB 115, the oil tax bill would help close the deficit to $500 million or less.
“Combined with the House Resources Committees [sic] efforts to rationalize Alaska’s oil and gas subsidies and ongoing efforts by the finance committee to find smart spending cuts without eliminating core services, this represents what we believe to be the most fair approach to fulfilling the government’s constitutional obligations and sustaining the kind of Alaska our constituents want to live in,” House Finance Co-chair Neal Foster (D-Nome) said Friday of HB 115.
House minority members objected to the oil tax proposal being introduced with House Resources Committee sponsorship when no minority members on the committee had seen the bill. The ensuing debate lasted more than half an hour.
After HB 115 was introduced Friday as a House Finance bill, Rep. Lance Pruitt (R-Anchorage) rose during Special Orders to issue a similar protest.
“The most disturbing piece of this: there’s a 15-percent income tax on hard-working Alaskans during a time of recession. Now you understand why I don’t want my name associated with this,” Pruitt said on the House floor.
“I am not a part of that bill. I haven’t even seen the bill,” he said of HB 115. “My name is attached to something promoting an income tax…. That’s where my objection comes from.”
Fellow Finance member Rep. Cathy Tilton (R-Wasilla) said the bill introduction was discourteous. She echoed, “It does not reflect me or what I believe, and I do not want my name attached to it.”
Foster assured members that the only names that will appear on letterhead attached to the bill are his and Seaton’s.
Further, the House Finance Committee voted 6-4 to allow Seaton and Foster to introduce bills on behalf of the committee. Pruitt and Tilton voted “no.”
Rep. Dan Saddler (R-Eagle River), who was on the losing end of a similar vote in House Military & Veterans’ Affairs, said that it gave House Majority Leader and committee Chair Chris Tuck (D-Anchorage) “limitless power to introduce any bill he wants” on behalf of the committee.
“That’s not fair,” Saddler said. “To force it to be a committee bill is not good process. It’s not open. It’s not public. It’s not transparent, and it violates the fundamental spirit of cooperation and open parliamentary debate that we all depend on to do our jobs properly for the State of Alaska.”
To be clear, any bill by a committee chair has to be publicly introduced. Then, it has to be passed by that committee, any other committees to which it is referred, and both chambers of the legislature, all of which happens publicly.
Saddler acknowledged that elections, like the 2016 election that flipped control of the House to a coalition led by Democrats, have consequences.
“That’s true, but the rules that we follow, the principles we adhere to, are what make us a democracy and not a banana republic subject to the tyranny of the majority,” Saddler asserted.
Some House Members Declare Intent to Vote “No” Before First Hearing
Tuck responded the new House majority is following proper procedure.
“Someone once asked me, ‘Are you going to show the new minority what it’s like to be in the minority?’ My simple response is, ‘No. They’re going to know what it’s like to be in the minority all on their own. We’re going to show how to lead in a new majority,’” Tuck told the House.
Rep. David Guttenberg (D-Fairbanks), who sits on House Finance, rose to lend his perspective as “one of the senior members” of the House.
“I always thought a committee bill was a privilege of the chair,” he said. “On the committees I sat on, I never assumed it was my bill. I never assumed I had to support it. I never assumed I couldn’t amend it. I never took ownership of it, unless I wanted to. That hasn’t changed.”
Freshman Rep. Zach Fansler (D-Bethel) said the legislature seems to have lost focus this week.
“I was put here by my constituents to come and accomplish something, and I feel that over the past several days, we have been debating and re-debating and debating some more the simple introduction of bills. That, to me, is not accomplishing something. We owe our constituents better,” he told House members.
“We have a large fiscal crisis, and I want to remind us we need to continue to move the ball forward. We need to keep our eyes on the prize, and we need to make sure that we come up with a fiscal solution.”
Friday’s informal debate on HB 115 took over 20 minutes. It is unclear if the House minority is consciously bleeding the clock to the end of the 90-day session as a tactic to avoid consideration of taxes.
Pruitt said Friday that while he has no problem talking about taxes, the time to impose an income tax is “Never.”
Tilton went further on Twitter, writing, “I totally oppose the new income tax bill (HB 115) introduced this morning. I will be a no vote in committee and on the floor.”
That doesn’t leave much room for consideration.
HB 115 is scheduled for its first hearing on Monday.