Alaska House passes school tax
On Saturday, the Alaska House of Representatives passed the “Education Funding Act” that includes an income tax with the aim to set up a stable revenue stream in order to pay for the state’s education mandate. As school districts statewide and in Nome are grappling with uncertainty and looming cuts, the House passed the bill to finance education through the “Education Funding Act,” or House Bill 115. The House passed the bill by a vote of 22 to 17. Nome’s Representative Neal Foster voted in favor of it.
“We have a $2.7 billion deficit, and we are nearly out of time to fix it,” Rep. Neal Foster said responding to an email request from the Nome Nugget for comment. “I have been adamant that we act responsibly to find a solution this year. As such I voted in favor an income tax, and it passed on a vote of 22-17.”
Foster argued that an income tax is fair because it asks people to help pay for schools and roads and public safety based on their ability to pay.
“For many people who live in our district they will pay little or no income tax,” Foster said. A single individual making about $15,000 or less per year will pay no income tax. “Many people in our 33 villages lead a subsistence lifestyle. Others sell ivory and other pieces of artwork to help pay the bills. Oftentimes this means that folks earn well below the $15,000 threshold. I have received many emails and letters from individuals and organizations within our district saying that they prefer an income tax over a sales tax.
“In addition, I feel strongly that if we are asking Alaskans to help fix the deficit then we also have to ask the same of the oil industry.” Last week the House passed a bill that eliminates oil subsidies and raises oil taxes.
“We in the House have now passed out bills that get Alaska a long-term, sustainable, fully funded fiscal plan. These bills have yet to be vetted on the Senate side.
“So we have a ways to go, but we feel we are headed in the right direction,” Foster said.
According to a press release from the House Majority, the tax will raise an estimated $687 million for the Public Education Fund once fully implemented, including an estimated $80 million from nonresidents who come to Alaska to earn a living but don’t contribute to essential state services. The tax would work similar to the federal income tax with employers’ withholding tax payments and the ability for individuals to file tax returns electronically.
The tax is a bracketed income tax based on federal adjusted gross income. According to the bill’s text on the Legislature’s website, individuals making $14, 300 or less are exempt from the tax; couples filing jointly without children are exempt up to $28,600. Couples filing jointly with a child receive an addition $4,000 deduction for each child, or dependent.
The tax brackets for individuals are: income between $10,300 and $50,000 pay 2.5 percent of the amount in excess of $10,300. For people earning between $50,000 and $100,000, they have to pay $992 plus four percent of the amount in excess of $50,000.
Individuals earning between $100,000 and $200,000, have to pay $2,992.50 plus five percent of the amount in excess of $100,000. People earning between $200,000 and $250,000 pay $7,992.50 plus six percent of the amount in excess of $200,000. Those earning $250,000 and more pay $10,992.50 plus seven percent of the amount in excess of $250,000.
According to the press release, the bill includes a $4,000 personal exemption that applies to every person in a household, Permanent Fund dividends are exempt from the tax and the bill allows Alaskans to choose to apply some or all of their PFD to pay the school tax.
The tax would also be levied on trusts and estates.
The Democrat-controlled House lauded the passage of the tax.
“Passing HB 115 means that legislation representing all four pillars of our comprehensive fiscal plan has passed the House, which sets up the normal end of session negotiations,” said House Finance Committee Co-chair Rep. Paul Seaton (R-Homer). “Our economy is in a recession and every expert to come forward has advocated for a comprehensive response that protects Alaska from the volatility of oil prices. We must put in place a fiscal plan that uses more than just one revenue source. Combining the appropriate use of Permanent Fund earnings with this modest school tax spreads the burden equally across the state.”
According to their press release, the members of the Alaska House Majority Coalition have labeled public education as a top priority and the budget that passed the House left K-12 funding unchanged from the current fiscal year. However, the version of the budget that passed the Senate includes a $69.3 million dollar cut to the Base Student Allocation, which equals a loss to school districts of $265 per student. This directly impacts classroom instruction and will result in the loss of 700 hundred teachers across the state. For the Nome Public Schools District, it meant a budget shortfall of $1.2 million. The State Senate also approved a cut to the University of Alaska that has been labeled devastating by University officials, who would be forced to respond to the Senate’s proposal by suspending and discontinuing academic programs and laying off professors and support staff.
“Many lawmakers advocate for cutting public education in these tough fiscal times,” said Rep, Ivy Spohnholz, a Democrat of Anchorage. “I argue that they have it backwards—we need to ensure our children’s education. Without new revenue we will have worse educational outcomes, which is bad for kids and bad for our economy.”
Immediately after the news spread that the House passed the bill, press releases that oppose the tax were sent out as well. House Republicans opposed the passage of HB 115. “Taxing Alaskans is fundamentally the wrong thing to do during an economic recession,” said Representative Lance Pruitt, R-Anchorage. “Over 9,000 Alaskans have lost their jobs in the last year. We’ve heard from economists that another 7,500 jobs will be lost in 2017. The House Majority’s income tax will make these numbers worse, and make it harder for Alaskans already struggling to make a living.”
The House Republican press release pointed to a March 2017 poll commissioned by the Alaska Chamber of Commerce with the result that 58 percent of Alaskans oppose imposing an income tax to fill the state’s budget deficit. An informal Nome Nugget poll found last April that 47 percent would prefer an income tax and 32 percent would prefer using the Permanent Fund to balance the budget. However, a recent Nome Nugget poll from early April 2017, asked if voters are for Senator Donny Olson’s income tax proposal. In response, 63 percent opposed, with 37 percent in favor of Sen. Olson’s proposal.
The bill now heads to the Senate for consideration. Senator Pete Kelly (R-Fairbanks) argued that it is a bad idea to impose taxes on working people in a recession. “The House is a co-equal chamber of the legislative branch, therefore, we plan to give the income tax proposal a fair hearing,” Sen. Kelly said. “That being said, reaching into the pockets of working Alaskans – when the state is in the grips of a recession – is absurd on its face. This is the worst possible time to penalize people for having a job.”