Tax options can shift burden away from Alaskans, legislative agency says

JUNEAU -- How Alaska responds to its budget crisis will determine who pays the most and who pays the least, said Legislative Finance Director David Teal.

But some of the government funding options available to legislators can shift costs that are currently borne by Alaska residents to others, he said.

To answer questions about revenue options such as income and sales taxes and spending Permanent Fund earnings on running state government, the Legislative Finance Division has developed a spreadsheet that lawmakers and citizens can use to weigh various options they might face.

"We've had so many people curious about those things that we thought it was best to put it in a spreadsheet and post it than try to answer every question individually," Teal said. "It was just more efficient."

And in an analysis paper accompanying the spreadsheet, Teal looked at the strengths and weaknesses of various broad-based tax options likely to be considered. The paper didn't look at increases to oil or other specific taxes.

One conclusion was that several of the options could shift costs to non-Alaskans. That's especially clear with income taxes, he said.

"It's not that you target them, it's just that people who work here, whether they're working on the North Slope or in fish processing plants or here in Juneau in cruise ship tours, some of them may be local and some may be out of state, and we're not taxing any of them," Teal said.

That means an income tax would not entirely be paid by Alaskans.

"The Department of Labor and Workforce Development estimates that 15.2% of wages in Alaska were paid to non-residents in 2013," the paper said, saying that meant that only 85 percent of revenue collected by an income tax would come from Alaskans.

A more progressive tax might reduce Alaskans' share of the cost, but that would take detailed examination of Internal Revenue Service data that's not available to Legislative Finance, but may be available to the Department of Revenue.

"Before you pass a tax bill, you might want to start asking these questions and see if the Department of Revenue can answer them, because we can't," Teal said.

A statewide sales tax would also capture revenue from nonresidents, both workers and tourists, he said.

Sales taxes could also be structured to protect Alaskans to an extent, the paper said, such as by exempting groceries or by only being imposed or having a higher rate during the summer.

And Teal warned about various downsides as well. Many Alaska cities already have sales taxes, as high as 7 percent in Kodiak and Wrangell, and adding a state tax atop that could hurt local retailers by driving shoppers online.

That doesn't mean the state can't impose a statewide sales tax, but legislators should consider the impacts, he said.

"Look at Washington -- (their) rate varies around the state and that doesn't seem to be a problem from having a state tax piled on top of a local tax," he said.

But when they get too high, they can shift buying patterns, he said.

More serious problems could come from a seasonal tax aimed at tourists and visitors.

"What would a car dealership do if they just didn't sell any cars all summer long?" he said.

Teal said he doubts the business community would support seasonal taxes, but he reviewed them in the paper because they've frequently been discussed.

"There are some real problems with a seasonal tax, but some people have suggested it as a way to capture more money from non-residents," he said.

A sales tax that exempts food would collect about $105 million for every percent of the rate, he said.

"A sales tax would also disproportionately impact low-income households, who tend to spend a larger percentage of their income on taxable items than higher-income households," the paper said.

The paper also looked at the impacts from redirecting money from Permanent Fund dividends to state government operation.

That cost would "fall fully" on Alaskans, Teal's report said, but there are benefits there as well.

That's because an estimated 20 percent of the money paid out as dividends goes to the federal government in income taxes, or about $280 million of this year's $1.4 billion, the paper said.

Further, income and sales taxes can be deducted from federal tax liability for those taxpayers who itemize their deductions, the paper said.

The report also pointed out that Alaska has no broad-based sales or income taxes now, unusual among states, and actually pays residents a dividend each year. That, in effect, currently gives Alaskans a negative tax burden, the paper said. Teal acknowledged that calculation doesn't include local taxes.

The accompanying spreadsheet enables users to enter various tax rates, family sizes and income levels to see the individual impacts of different government funding options.