P.O. Box 1564
Homer, AK 99603-1564
Telephone: (907) 299-3434
Paul Seaton

    for Alaska State House of Representatives
    District 31
Fiscal Plan

HB 365 version P: Individual Income Tax and Permanent Fund Tax Credit
Sponsor Statement - Rep. Paul Seaton

Alaska has a $3.8 billion budget deficit, caused by the precipitous oil price drop to between $30 and $40 per barrel. A solution requires consideration of both state budget reductions and additional revenues. Even though the legislature cut FY17's budget about $900 million, and the governor vetoed an additional $1 billion, the price per barrel would need to be over $100/barrel to balance the budget. The "easy" cuts were taken last year. A diversification of revenue sources is required. Combining revenues from a Permanent Fund system restructuring and a progressive income tax creates a balance most fair to all Alaskans.

HB 365 establishes an income and long term capital gains tax on residents and nonresidents, allows the Permanent Fund Dividend (PFD) to be applied as a credit against that income tax due, directs a moderate portion of the distributable permanent fund earnings to support state services, and creates a 2.3% Percent of Market Value (POMV) draw from the Earnings Reserve Account (ERA). Individual Alaskan and nonresident contributions will not balance the budget alone, but are a necessity for a fair and realistic solution along with additional cuts to expenditures. This bill will contribute $2.4 billion to the General Fund annually.

Individual Income and Long Term Capital Gains Tax: Alaska is the only state without a state sales, income, or property tax. An income tax will generate the greatest revenue in an equitable manner at the lowest administrative cost. This bill creates an individual income tax on residents' income and nonresidents who have income from a source within the state. The tax is equal to 15% of the taxpayer's total federal income tax due. Long term capital gains are additionally taxed 10%. The individual income tax would also apply to income earned by Sub-S corporations or limited liability corporations, which currently do not pay the state corporate income tax. Currently, nonresidents pay their home state income tax on money they earned in Alaska. With the passage of HB 365, Alaska would now receive that tax revenue. It's estimated at least 15% of income tax revenue will be paid by the 20% nonresident workers.

Permanent Fund System Restructuring:
  • Refundable Tax Credit: Only qualifying Alaskan residents will have the option to apply their PFD towards their state income tax due. PFD eligibility requirements would remain the same as they exist today. Residents will first be given the option to apply some or all of their PFD to Pick Click Give and/or their child's college fund, similar to the arrangement now. The remaining PFD amount could then be applied as a credit to a resident's state income tax due with any overpayment returned as a tax refund. While the PFD is still taxable income on an individual's federal taxes, state income tax payments can be claimed as an itemized deduction on the federal schedule A form. Employers will withhold state income taxes from wages for both residents and nonresidents working in Alaska. Nonresidents will have the option to also prepay their income taxes through a form with the Dept. of Revenue.

  • Distributable Income Calculation: The calculation remains the same: 21% of the net income from the Permanent Fund for the last 5 years. Currently 50% of the distributable income goes to pay PFDs and 50% stays in the ERA. With this bill, 25% of the distributable income will go to pay PFDs, 25% will go directly to the General Fund to support state services, and the remaining 50% will still stay in the ERA. With this bill, the PFD will not exceed $1,200. If the amount calculated for the PFD exceeds $1,200, the amount in excess shall be appropriated to the General Fund.

  • 2.3% POMV: This bill will direct from the ERA to the General Fund 2.3 percent of average market value (POMV) of the Permanent Fund, including the ERA, for the past 5 fiscal years, including the fiscal year just ended.

The following links provide the full background and details on HB 365 which I believe is the most complete answer to our budgetary crisis, crafted in the most fair and balanced way so far considered.