Initial reactions to Gov. Bill Walker’s inclusion of Senate Bill 12, an education head tax bill, in his compromise proposal ranged from confusion to abhorrence.
Legislators never held a hearing on SB 12 during the 139 days of session before it was brought up and it has yet to hold an official hearing on it since. To most, the bill was a mystery: it has no fiscal analysis, no cost to implement and no sponsor statement. The House Finance Committee managed to hold an informational overview of the bill yesterday, more on that below.
The bill levies a fixed tax based on a person’s annual wages with the following income brackets as taken directly from the bill: less than $20,000, the tax is $50 a year; $20,000 or more, but less than $50,000, the tax is $100 a year; $50,000 or more, but less than $100,000, the tax is $200 a year; $100,000 or more, but less than $500,000, the tax is $300 a year; $500,000 or more, the tax is $500 a year. .
A little math and the tax was quickly recognized as deeply regressive.
Wow. $20K/year pays DOUBLE the rate of $250k/year.
— Jesse Kiehl (@JesseKiehl) June 6, 2017
And to those less concerned with the regressivity of a tax than they are with taxes at all, the bill was bad news.
Even those familiar with the bill admitted it had its problems.
In the normal course of a legislative session that would probably spell the end of SB 12, but this session is anything but. With desperate hopes to find a compromise, it appears the Legislature is at least giving SB 12 some thought.
The Senate Majority seemed to soften on its no-tax-ever policy in a letter sent to Gov. Bill Walker last week.
Folks thought the House Majority would have nothing to do with anything in the governor’s compromise following its stiff refusal of the proposal. But on Monday, the House Finance Committee held an informational overview hearing on SB 12. The meeting identified the obvious problems with the bill, but also hinted at the body’s willingness to work on it.
The meeting technically wasn’t on the bill because the bill is still over in the Senate, but it’s the closest thing to a hearing so far. It confirmed the bill’s regressivity, finding the percentage of a poor person’s income it took was 10 times greater than it did from the highest earning Alaskan.
The analysis below also doesn’t include whatever action the Legislature takes on the dividend. At least SB 12, as written, doesn’t count the dividend as income. It only counts earned wages.
The House seemed interested in working on the bill, and the meeting included concepts for increasing the brackets, changing the tax to a percentage and including earnings from capital gains or other investment income. When asked how long it would take to draft a new version, Tax Division Director Ken Alper said it could be done quickly.
The progressivity issues can be fixed to appease the House Majority, but the more you do that, the more it looks like an income tax.
The silver linings
SB 12 has some benefits that touch on concerns raised by Republicans about an income tax, namely the cost to administer the tax.
House Bill 115 estimated the Department of Revenue would need 45 additional full-time employees and 15 part-time employees to run the income tax, which would cost about $7.75 million a year. The new tax would have also cost about $14 million to implement in the first year.
The cost of SB 12 doesn’t have a cost estimate, but Department of Revenue Commissioner said it’ll be much lower.
“It’s essentially a payroll deduction and won’t require nearly the infrastructure development within the state in order to manage the tax,” he said at a news conference.
Still, SB 12 is the proverbial camel’s nose peeking under the tent. The administration has been up front with the fact that the proposal doesn’t come close to balancing the budget. If more revenue is needed in future years, they said the head tax could be the first place to look.