A new state income was plopped on the desks of members of the House Finance Committee last week, and it’s a dizzying restructure of what was being considered just two weeks ago. And completely different from one year ago.
If you use TurboTax to complete your yearly exercise in federal taking, you’ll probably need to hire a CPA to do your state taxes.
The new plan strips out the previous language in House Bill 115, which had proposed a flat-percentage income tax. It replaces it with language from Gov. Bill Walker through his Department of Revenue. Now, the tax proposal looks eerily like tax brackets from the Internal Revenue Service, but with rather leaner deductibles.
The new plan offered by tax promoter Rep. Paul Seaton, House Finance co-chair, is intended to disconnect the governor’s proposed income tax from the federal income tax, if federal taxes are reduced under President Donald Trump.
Judging from the complexity of these Seaton-Walker taxes, the “new, improved” HB 115 is a blueprint that has been on the design table for a while.
Insiders in Juneau say the governor has had an income tax proposal “in his back pocket” to be rolled out at the right time this session. But few thought he would do it surreptitiously through the Democrat House majority’s existing tax bill, rather than running his bill through the Rules Committee, which is the usual way for governor-sponsored legislation.
It’s a stunning (or cynical) reversal for the governor who, in October, 2014, told the Alaska Dispatch News: “I have no intention to implement a statewide tax or paying for state government by reducing Permanent Fund dividend checks. If we properly develop our natural resources and put in place a sustainable budget that should not be necessary.”
But putting in place a sustainable budget and developing our natural resources has fallen by the wayside. Now it’s all about taxes, as last year’s proposals revealed, which are getting more severe by the day.
And it’s becoming a familiar pattern: The tax hasn’t even passed and already it’s going up.
Unfortunately for Gov. Walker, Alaskans are not on board with an income tax. Not at all. A recent poll by Dittman Research of more than 800 Alaskans found that 58 percent of them oppose a state income tax, as shown by this slide given to Must Read Alaska by the Alaska Chamber of Commerce:
The governor’s newest tax plan leaves no taxable dollar untouched. It levies Alaskans at various rates, depending on their income. It’s also comprehensive, taxing everything from personal income, capital gains, pensions, estates, and different types of corporations. If it’s not nailed down, HB115 taxes it.
Must Read Alaska wrote about the new HB 115 on Friday, and promised readers we’d delve into it deeper. For those interested in learning more, the link to HB 115, with plenty of supporting material under the document tab, is here. And there will be hearings this week, starting today (Monday, March 27) at 1:30 pm. Hearings can be usually viewed on 360north.org
HERE ARE YOUR BRACKETS
If you are a wage earner in Alaska, get ready for steep progressivity. The governor’s income tax would have tax brackets similar to federal income tax brackets – except without the deductions.
The basic brackets for single and married, without children:
It gets more complicated once you have children, especially if they receive a Permanent Fund Dividend. The more you earn, the higher your tax. .
- If you sell your home, you’d be taxed by the state on any capital gains, (unless you buy a house of greater value).
- The Pick.Click.Give donation you just made? Not deductible on your state taxes.
- The mortgage interest you pay every month? No deduction.
- Do you get a State of Alaska pension (Tier 1-3)? You get a 10 percent cost of living allowance on the one hand, but will pay much more back to the state from the other hand.
- Do you have income from a trust or estate? All taxable like regular income.
- Are you on a fixed income? The State of Alaska will “fix” it lower for you.
- Do you have short-term or long-term income? The State of Alaska would consider both the same as regular income.
Last year, the governor’s tax plan was also far reaching, but quite different from his new proposed brackets, which is going to hit resource workers, doctors, lawyers, electricians, and many fishermen hard. In other words, anyone who has any success, financially. Even a modest amount.
This year’s tax proposal can’t be compared line by line with last year’s, however. Walker’s 2016 income tax plan was 6 percent of what Alaskans pay the IRS. Simple. Straightforward.
An Alaskan who owed $10,000 in federal taxes would have owed the State of Alaska $600, under that plan. Walker also in 2016 proposed tax hikes on alcohol and tobacco, fuel, fishing, mining, energy, and tourists.
This year, Alaskans making over $100,000 a year would have to pay the State $6,000, regardless of what they pay the IRS. In other words, important deductions under the federal code don’t work inside Alaska, as envisioned by the Walker Administration and his allies in the State House.
Rep. Seaton, a state income tax true believer from Homer, has been working with the Department of Revenue. By introducing the governor’s language, he’s making sure that people in his home town, where the median household income is $54,778, will pay at least $1,000 a year to the State. And more, in many many cases.
The Seaton-Walker plan is projected to bring in $657 million. But can it be managed by the Department of Revenue with only 60 Revenue Department workers? That’s the number of new employees the original HB 115 had projected, but this tax plan may require more auditors, due to its complexity. There was no fiscal note attached to the new bill.
Hearings on HB 115 will continue throughout the week. Public testimony on this plan begins Wednesday, and Alaskans with an opinion can head to their nearest Legislative Information Office. The limit on citizen testimony is two minutes.