The Alaska Citizen's Guide to the Budget


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.

 

Federal Income Taxes Paid by Alaska Residents in 1997
Adjusted Gross Income Category
Returns
Adjusted Gross Income in thousand $
Taxable Income in thousand $
Income Tax in
thousand $
Average Rate
Share of Collections
-
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

 

Estimated Alaska State Income Taxes paid by Residents from Surcharge of 14% on Federal Taxes in 1997
Adjusted Gross Income Category
Returns
Taxable Income in thousand $
Income Tax in thousand $
Average Rate
Share of Collections
Avg Collection per Return
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

 

Estimated Alaska State Income Taxes Paid by Non-Residents from Surcharge of 14% on Federal Taxes in 1997
(thousand $)
 
Adjusted Gross Income
Taxable Income
Tax Revenues
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.

Alaska Resident Federal Income Tax Offset to State Income Tax Liabiltiy in 1997
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
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.

 

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