With new taxes on the table, legislators examine existing taxes and exemptions

The House Ways and Means Committee meets on July 13, 2021.

With renewed energy to achieve a durable and long-term fix to the state’s structural budget deficit, legislators are saying nothing is off the table whether it be changes to the dividend, cuts to services or new taxes. But before legislators delve into wholesale new taxes, a group is taking a look at existing taxes and the dozens of carve outs that cost the state more than $1 billion each year in foregone revenue.

The issue was the topic of Tuesday’s meeting of the House Ways and Means Committee, a special committee formed this year to examine the state’s revenues and generate options for new revenues, that heard from the Department of Revenue’s Tax Division the state’s taxes and indirect expenditures.

Overall, the hearing served largely as an opener on the issue and it raised more questions than answers with legislators asking about why various exemptions were created in the first place or how long it’s been since other taxes have been adjusted and how they stack up against other states.

At the core of the presentation was one of the wonkier things to come out of the Legislature in recent years: The biennial report on indirect expenditures. Created by legislation authored by Fairbanks Republican Rep. Steve Thompson several years ago, the report looks at all the revenue the state misses out on because of various carve outs and exemptions created in state law. It covers everything from $500 of foregone revenue for fishmeal testing to $15.3 million of foregone revenue for senior hunting and fishing licenses to $1 billion in foregone revenue for the per-barrel credit on oil taxes. Some are on the regulatory level while others would require changes to state law to alter.

There was some confusion at the hearing because one slide presented by the Tax Division claimed the foregone revenue totaled more than $3.8 billion annually, even though the report pegs it closer to $1.3 billion. It appears that the higher number was an error, but it was not confirmed to be so during the hearing.

Either way, the foregone revenue happens to align somewhat neatly with the state’s structural deficit that ranges between about $1 billion and $2 billion depending on who you ask and on the size of the dividend (it’s nearly $0 if you zero out the dividend, by the way). There’s been mounting pressure, in particular, for the state to reconsider the $1 billion in foregone revenue driven by the per-barrel credit on oil taxes with even some industry-friendly Republicans conceding that it’s worth reopening.

Tuesday’s hearing didn’t produce any concrete direction, but committee chair Rep. Ivy Spohnholz, D-Anchorage, said these foregone revenues should be a key part of the discussion as the state considers ways to balance the budget.

“I think that making sure that we understand our revenue stream and also the choices we’ve made along the way is really important. This committee has the responsibility both to bring in new revenue but also squeeze more value from our current revenue sources,” she said. “When our fiscal gap’s between $1 billion and $2 billion, we clearly need to dig into it a little bit and make sure we still agree with the choices that have been made historically.”

The House Ways and Means Committee isn’t the only ongoing legislative effort to address the state’s structural deficit. The House and Senate have formed a joint Legislative Fiscal Plan Working Group tasked with coming up with the framework of a full fiscal plan ahead of the fall special session, which is currently scheduled to begin on Aug. 2. The committee is set to hold its first substantive hearing today at 2 p.m. with a historical overview of the state’s budget.

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