Personal Income Tax

5.2.1 New Revenues to Fill the Fiscal Gap—Personal Income Tax

Based on the size of the tax base of 1999 (Alaska personal income), a personal income tax would produce between $250 and $350 million dollars depending on the rate schedule (flat vs. progressive), size of the exemption, deductions, and credits.

Estimate based on federal tax collections from Alaska

If the tax were structured like the prior state personal income tax at a rate of 14% of federal liability-a progressive tax-collections in 1997, based on the federal schedule at that time, would have been about $273 million: $247 million from residents, and $26 million from non-residents who earned income working in Alaska. The average tax rate for Alaskans based on Adjusted Gross Income would have ranged from 2 to 4 percent.

Adjusted Gross Income Category	Returns	Adjusted Gross Income in thousand $	Taxable Income in thousand $	Income Tax in thousand $	Average Rate	Share of Collections
Federal Income Taxes Paid by Alaska Residents in 1997
-	343,154	$11,869,525	$8,593,716	$1,762,934	20.5	100 %
Under $20	169,320	$973,986	$389,894	$59,809	15.3	3.4 %
$20 to $30	37,274	$923,710	$514,240	$76,845	14.9	4.4 %
$31 to $50	53,069	$2,089,718	$1,398,539	$227,708	16.3	12.9 %
$51 to $75	41,968	$2,570,934	$1,872,296	$330,716	17.4	18.8 %
$76 to $100	21,742	$1,868,911	$1,439,540	$290,773	20.2	16.5 %
$101 to $200	16,678	$2,137,893	$1,757,641	$407,636	23.2	23.1 %
Over $200	3,103	$1,304,373	$1,221,566	$369,448	30.2	21 %
Source: IRS, Statistics of Income, 1999

Adjusted Gross Income Category	Returns	Taxable Income in thousand $	Income Tax in thousand $	Average Rate	Share of Collections	Avg Collection per Return
Estimated Alaska State Income Taxes paid by Residents from Surcharge of 14% on Federal Taxes in 1997
Total	343,154	$8,593,716	$246,811	2.87	100 %	$719
Under $20	169,320	$389,894	$8,373	2.15	3.4 %	$86
$20 to $30	37,274	$514,240	$10,758	2.09	4.4 %	$291
$31 to $50	53,069	$1,398,539	$31,879	2.28	12.9 %	$610
$51 to 75	41,968	$1,872,296	$46,300	2.47	18.8 %	$1,126
$76 to $100	21,742	$1,439,540	$40,708	2.83	16.5 %	$1,906
$101 to $200	16,678	$1,757,641	$57,069	3.25	23.1 %	$4,004
Over $200	3,103	$1,221,566	$51,723	4.23	21 %	$11,896
Sources: IRS, Statistics of Income, 1999, and ISER.
Average collections per return calculated at the midpoint of the AGI category.

Since the non-resident share of earnings was 11.4 percent in 1997 (Alaska Department of Labor), a rough estimate of the tax revenues from imposing a state tax on this income would be in the range of $20 to $25 million. (The non-resident definition in the following table includes newly arrived Alaskans who have not yet qualified for the Permanent Fund dividend.)

Alaska Non-Resident Earnings in 1997 in million $
Total	$895
Oil and Gas Extraction	163
Seafood Processing	136
Construction	78
Air Transport	77
Wood Processing	25
Eating and Drinking Places	33
Water Transport	19
Metal Mining	16
Hotels	21
Business Services	15
Health Services	30
Engineering and Accounting Management	37
State Government	27
Local Government	17
All Other	201
Source: Alaska Department of Labor

	Adjusted Gross Income	Taxable Income	Tax Revenues
Estimated Alaska State Income Taxes Paid by Non-Residents from Surcharge of 14% on Federal Taxes in 1997 (thousand $)
Alaska Residents	$11,869,525	$8,593,716	$246,811
Ratio of Taxes to This Base	2.15%	2.87%	-
Non-Resident Taxes Using this Ratio	$18,610	$25,704	-
Sources: IRS and ISER.

The net amount contributed by Alaskan resident households would have been $220 million- the $247 million minus about $27 million in reduced federal income tax liability of those Alaskans who claimed a deduction on their federal tax returns for state income taxes paid.

Adjusted Gross Income Category	Itemized Returns	Amount Itemized (000$)	Estimated Marginal Federal Tax Rate	Estimated Share of State Tax Liability Above Standard Deduction	Offset (Reduction) in Federal Taxes in thousand
Alaska Resident Federal Income Tax Offset to State Income Tax Liabiltiy in 1997
Total	73,546	$1,015,638	-	-	$26,938
Under $20	3,968	45,334	15%	.5	$15
$20 to $30	4,352	4,4554	15	.5	$94
$30 to $50	14,642	159,759	15	.5	$660
$50 to 75	21,007	263,878	15	.5	$1,738
$75 to $100	14,784	213,111	28	.75	$5,813
$100 to $200	12,770	222,891	28	.75	$9,176
Over $200	2,023	66,111	28	1	$9,442
Source: IRS, Statistics of Income, 1999, and ISER.
Note: Marginal tax rates and share of state tax liability above standard deduction assumptions by author. Federal offset calculated as the amount itemized multiplied by the share of tax liability above the standard deduction multiplied by the marginal tax rate.

Estimate based on average per capita personal income
tax payments for the United States as a whole

In 1997 the average US resident paid state income taxes of $543. This amounted to 2.15% of total personal income. Applying the same percentage to Alaska personal income in 1996 produces an estimate of personal income tax collections of $536 per capita or $326.5 million in total.

Alaska Personal Income Tax Revenues Estimated from U.S. Average Collections in 1997
	U.S. Average	Alaska
Per Capita Individual Income Tax	$543	$536
Per Capita Income	$25,298	$24,945
Tax as Percentage of Income	2.15	2.15
Population (thousand)	-	609
Total Tax Revenue (million)	-	$326.5
Source: U.S. Department of Commerce.

Other states

As of 1999, 43 states had a state personal income tax. Of these, two states, Tennessee and New Hampshire, taxed only interest and dividends. Of the 41 remaining states the tax base for most is federal adjusted gross income, federal taxable income, or the federal tax liability (Federation of Tax Administrators). The tax bite (as a percentage of personal income) among these 41 states varied in 1997 from a low of 1.26% in North Dakota to a high of 4.21% in Oregon.

States without a personal income tax were Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

See the detail by state.

Estimating income tax collections using a model of the income distribution

We hope to conduct this analysis when better information on the distribution of income in Alaska becomes available. This will allow us to see how different income groups are impacted by different tax structures.

A note on different definitions of income

As one might expect, different public agencies have different definitions of "income." The most common are Personal Income (U.S. Department of Commerce, Bureau of Economic Analysis [BEA]), Personal Income (U.S. Census Bureau), Adjusted Gross Income [AGI] (U.S. Treasury), and Taxable Income (U.S. Treasury). Personal income [BEA] includes income that is generally taxed, income that is partially taxed, and several types of income that are not taxed, such as medicare. AGI consists only of taxable sources of income including net gains from the sale of assets.