Untapped Revenues—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 former personal income tax at a rate of 14% of federal liability—a progressive tax—collections in 1997 would have been about $275 million: $247 million from residents and $25 million from non-residents who earned income working in Alaska.
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 federal income tax itemizers.
Since the non-resident share of earnings was 11.4 percent in 1997, 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. (Non-resident includes newly arrived Alaskans who have not yet qualified for the Permanent Fund dividend.)
(Non-resident earnings could be much lower based on a comparison of wages paid in Alaska in 1997, as reported by the Alaska Department of Labor, of $8.72 billion with wages reported to the IRS of $8.56 billion. On this basis the non-resident wages were only $160 million.)
Estimate based on average per capita personal income tax payments for the United States as a whole. In 1996 the per capita state and local personal income tax collections were $554. In 1997 the state per capita personal income tax collections were $543. This latter amount was 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.
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.