Economist says income tax least regressive

Posted: Wednesday, February 20, 2002

JUNEAU (AP) -- The average Alaskan would pay about 3 percent of his gross income to the state under Gov. Tony Knowles' proposed income tax measure, an economist told a House committee on Tuesday.

While the tax would take less of a bite from Alaskans than would a statewide sales tax, it could also result in about 3,500 lost jobs, said Scott Goldsmith, an economist with the University of Alaska Anchorage.

Goldsmith testified before the House State Affairs Committee, which is considering several competing tax plans to close the state's budget deficit.

Committee Chairman John Coghill, R-North Pole, said he plans to use the testimony to fashion bills to tax income and sales in an effort to spark debate. He is also considering a measure that uses the Permanent Fund.

''Those are the three biggies that are real possibilities,'' said Coghill, who added that he does not favor any of the tax plans.

At least two income tax proposals are on the table in the House as lawmakers consider ways to close a budget deficit that's expected to grow to $1.1 billion by fiscal 2003.

Knowles proposes imposing a income tax that's 20 percent of a person's federal tax bill in order to raise about $350 million.

Rep. Bill Hudson, R-Juneau, is proposing a tax on adjusted gross income, which would not include exemptions, credits and deductions.

Hudson's proposal -- House Bill 199 -- would tax 1 percent of adjusted gross income in the first year and 2.25 percent of adjusted gross income in subsequent years.

The state Department of Revenue estimates it would generate about $117 million the first year and $283 million after that. The department estimates a 2.25 percent tax would have the effect of taking about 2 percent of a person's gross income.

Hudson said the advantage of taxing adjusted gross income is that Alaska's tax policy would not change when the federal tax code changes.

Goldsmith said he has not studied Hudson's proposal.

Knowles' plan, Goldsmith said, could result in about 3,500 jobs lost in the service sector as Alaskans spend less. But the tax plan is more progressive than a statewide sales tax, he said.

''I think the economy could absorb that without crashing,'' Goldsmith said.

Knowles' tax plan would also have a greater impact on nonresidents than a statewide sale tax since about 10 percent of Alaska's workers are nonresidents, Goldsmith said.

About 93 percent of a statewide sales tax would be paid by year-round residents, since only about 7 percent of states sales are to nonresidents, Goldsmith said.

''You think about a summer day in Juneau. It's overrun by tourists, but they are not out there buying SUV's or making big-ticket purchases,'' Goldsmith said.

Republican leaders in the Senate have said that a sales tax has greater support than a broad-based income tax and so far two major sales tax plans have emerged this session.

One measure to impose a 6 percent seasonal sales tax from May to September is sponsored by Rep. Jim Whitaker, R-Fairbanks. House Bill 303 would raise about $300 million a year.

An amendment offered by Rep. Con Bunde, R-Anchorage, to an alcohol tax bill would impose a 3 percent sales tax. It would raise about $300 million, Bunde said. It is found in House Bill 225.

Rep. Jeannette James, R-North Pole, said she supports a flat income tax that distributes the tax burden equally to all Alaskans. She said a sales tax would hurt local governments that also have such a tax and it cannot be deducted from the federal income taxes.

Alaska residents still strongly support a sales tax over an income tax, she said. ''They don't know how much they are paying,'' with a sales tax, James said.

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