Seaton introduces new income tax language from governor

Rep. Paul Seaton’s aide, Taneeka Hansen, explains the new version of the income tax bill, HB 115.

The governor has spoken on the need for a state income tax — again.

Only this time it’s a whopper of an income tax bill. It covers S corporations, limited liability corporations (LLCs), trusts, and estates. It creates tax brackets, like the federal government, rather than taxing people a percentage of their federal tax liability.  It has taxes in it that the governor never dreamed of last year.

HB 115 is, in fact, a whole new bill.

At the beginning of today’s House Finance Committee meeting, Rep. Tammie Wilson asked Rep. Paul Seaton’s staff, Taneeka Hansen, where the new tax language came for the new version of HB 115.

The answer is a lot of it came from the administration of Gov. Bill Walker. The Department of Revenue, which has been rumored to have an income tax plan in its back pocket, introduced it through Seaton’s staff, and Seaton’s original HB 115.

“We were working with the Department of Revenue to get the type of language they would need in order to implement an effective tax,” said aide Taneeka Hansen. She also referenced people who had testified that an Alaska income tax on a federal tax liability might make it volatile, should the federal tax rates change.

Hansen said others had testified that deductions and credits that people use to reduce their federal tax liability aren’t “necessarily the best tax system.”

With the new version, things like mortgage interest, charitable donations, or itemized deductions would not be allowed as deductions against your state tax, a clear shot across the bow of Alaska’s working middle class.

The new version of HB 115 is complicated. In addition to increasing taxes in numerous ways, it restructures how the Permanent Fund Earning Reserve Account works, and we’ll save that analysis for another day.

But it does all of this — setting forth various taxes and fiscal restructuring — without a fiscal note so far, which is the piece that tells Alaskans how much it will cost to implement, and what all the new taxes are expected to generate.

This new version is so complex that the bill is likely to require a new set of public hearings. Rep. Tammy Wilson of North Pole forced the hand of Chairman Paul Seaton of Homer, by detailing how many aspects that were new in this bill.

“There are so many moving parts to this that right now it’s hard to know what extent it will hit the individual,” said Wilson in an interview Thursday, as she and her staff were combing over the bill to understand how much Alaskans will be asked to give State government, should it pass both the House and Senate.

Knowing that much of the new version originates with the Department of Revenue, if it did pass both houses, it would likely be signed by the governor.

But passage in the Senate is unlikely. Senate President Pete Kelly issued a statement on a Facebook video saying that the Senate Republican majority is not interested in an income tax, but that they have sent the House a plan that would solve the state’s fiscal crisis with budget cuts, a spending cap, and revenue limits, along with a set Permanent Fund dividend and use of Earnings Reserve Account of the Alaska Permanent Fund.

“We believe people should be able to keep the fruits of their labor,” he said. “We just don’t think you should be taxing people at the same time you’re handing out [Permanent Fund] checks.”

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