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Tax Options for Alaska: Distributional Implications of Major Alternatives October 5, 2002 Matt Gardner Institute on Taxation and Economic Policy 1311 L Street NW Washington, DC 20005 (202) 626-3780 www.itepnet.org
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Evaluating Tax Equity Progressive tax: High income taxpayers pay a greater share of their income than do low income taxpayers. Regressive tax: Low income taxpayers pay a greater share of their income than do high income taxpayers. Proportional or “flat” tax: All taxpayers pay the same share of their income.
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Alaska taxes are regressive.
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What Makes State and Local Taxes Regressive? ITEP’s 1995 “Who Pays” study found that the most regressive tax systems tend to: + Rely heavily on sales and excise taxes. + Not impose a personal income tax + Impose an income tax, but at a low, flat rate. Conversely, the least regressive tax systems were those that: + Impose a progressive income tax. + Rely very little on sales and excise taxes.
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The Permanent Fund Dividend has its biggest impact, as a percentage of gross income, on the poorest Alaskans.
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A statewide sales tax would fall most heavily on low- income taxpayers.
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This is because low-income Alaskans spend a greater percentage of their income on items subject to the sales tax.
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Approaches to a Federal-Based Income Tax + Adjusted Gross Income (FAGI). This approach links to the federal tax before exemptions and deductions are allowed, and before the tax rates are applied. + Taxable Income (FTI). This approach links to the federal tax after exemptions and deductions are allowed, but before the tax rates are applied. + Federal Tax. This approach links to the federal tax after exemptions and deductions are allowed, and after the tax rates are applied.
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Personal income taxes are among the most progressive taxes states can levy– but some income taxes are more progressive than others.
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Why Federal Deductibility Matters: Impact of a $300 Million “% of Federal” Tax Before and After Fed Offset
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The More Progressive the Income Tax, the Greater the “Federal Offset”
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