An adult tax filer starts with the taxable income on line 37 of the Federal form 1040. From that, the filer deducts $10,300 (or $20,600 for filing jointly with a spouse), then deducts $4,000 for each person in the family, then deducts the full PFD amount for each family member. The remainder is taxable for the state of Alaska at 2.5% for income up to $50,000 and then going up in broad bands. So, for example, an unmarried legislator with salary of $50,400 and no other income would calculate like this:
Taxable income: $50,400
Less “free” income ($10,300)
Less per person discount ($4,000)
Less PFD ($1,250)
Taxable income: $34,850
2.5% tax rate would be: $871.25
The planned implementation for this would be January 1, 2019, for eligible income to be withheld for the first return to be filed in April of 2020. The intent of this new revenue is to be appropriated for education.
The Alaska House Majority Coalition has a link to a tax calculator to figure out how much you would owe under this plan. Go to http://akhouse.org/ and it is located on the right-hand side. If you want more details about the tax brackets, here is a more in depth explanation on what they are and how they work.
And here, just for review, is a link to a Federal form 1040: https://www.irs.gov/pub/irs-pdf/f1040.pdf
What it costs and brings in to the state:
The cost to the state for operating this tax is projected to be about 1.5% after implementation. Projected revenues are approximately $687 million in 2020.
How this stacks up compared to elsewhere:
Alaska is the only state that does not use some form of broad-based tax to fund state services. Forty-nine other states have an income, sales, or property tax, or combination of two or three, to fund government services. With implementation of HB115 as currently written, Alaska would still have the lowest tax rate in the nation, and keep a tax deductible PFD of $1,250.
So how does this impact Alaskans?
As of right now, there are two fiscal plans. The House plan is comprehensive, sustainable and covers the deficit by restructuring the PFD and capping the dividend at $1250 (SB26), oil and gas tax reform (HB111) and a modest income tax (HB115). The Senate plan caps the dividend at $1,000 and makes deep cuts to the budget, specifically targeting Pre-K, K-12 and University, healthcare, and social services.
Here are a few areas of economic importance and how they would be affected by varying approaches to bridging the budget gap:
Job Losses: According to ISER, (The Institute for Social and Economic Research), cuts to state workforce and broad based cuts to the state budget result in the greatest amount of jobs lost as compared to a progressive income tax or PFD cuts. Using their lowest estimates for reference, broad based cuts would yield a loss of 980 jobs, PFD cuts would yield a loss of 558, and a progressive income tax would yield a loss of 544. Direct cuts to the state workforce yield a startling loss of 1,414 jobs.
Impacts to Alaskans: