Under a proposed statewide income tax bill in the Capitol, Alaskans would have a choice when they apply for their annual Permanent Fund dividend: whether or not to set aside money to pay for their next year’s state income tax liability.
Employers could deduct state income tax payments from workers’ paychecks. But if workers prefer to pay with PFDs, they could ask their employers to deduct less money each pay period.
Alaskans who pay income taxes to other states would receive a credit to reduce their Alaska taxes.
Some minority-caucus Republicans expressed displeasure with House Bill 115’s details in a Senate Finance Committee meeting Monday.
North Pole Rep. Tammie Wilson told a Department of Revenue official it will be difficult for spouses who file their federal tax return jointly, but who pay state income taxes in different states.
“First of all, all of what you just said is a nightmare,” she said of the filing process. “I’ve done that with states before. And when you’re trying to figure out who to credit whom — luckily, they have H&R Block online.”
There could be two main new taxes passed this year. The income tax would be 15 percent of federal liability. A couple with two children and $150,000 in gross income would pay about $20,000 in federal income tax after deductions, and $3,000 in state taxes. And a separate 10 percent tax would be applied on all capital gains, such as the sale of stocks and bonds.
Anchorage Democratic Rep. Les Gara said residents should be clear that the income tax rate under the bill isn’t applied on their overall income.
“Fifteen percent of a 25 percent federal tax is a 3.75 percent tax,” Gara said. “I just don’t want anyone walking around saying that this is a 15 percent tax, when it’s not.”
Anchorage Republican Rep. Lance Pruitt expressed concern about the complexity of the bill. The legislation would also draw money from the Permanent Fund to pay for part of the state government budget.
“This is complex,” he said. “If I’m asking questions, you can understand what the public’s going to ask.”
Bill supporters say it would bring stability to the state’s budget and economy. The House Finance Committee will hold more hearings on the bill this week.
