Fundamental Income Tax Lessons for Alaska

Date: May 09, 2017

Related Content: News State Alaska Taxes

Editorial by NFIB/Alaska State Director Denny DeWitt

This editorial was sent to the entire Alaska media for free use in their publications and websites.

While the Alaska Legislature remains deadlocked on whether to bring back a state income tax or not, this is an ideal time to remind policymakers of a few things going on right now that have a fundamental bearing on whatever they decide.

Should a state income tax be reinstated, which Alaska small-business owners hope not – a doubly terrible idea given the state is still in a recession — one economic principle must never be forgotten: Tax. Rates. Matter!

Just ask Connecticut officials, who recently announced that their state would see $1.46 billion less in revenues by next year. Why? According to the Hartford Courant, “The revenue numbers show the income tax paid by Connecticut’s top 100 taxpayers this year fell by an astounding 45 percent compared to last year, officials said.”

But not to worry. Connecticut will see its way through. How? “While the income tax fell sharply, many other taxes were relatively steady. The cigarette tax is expected to generate $376 million in the current fiscal year, up $5 million from the projection three months ago. Slot-machine revenues from Mohegan Sun and Foxwoods are expected to generate $267 million this year — the same estimate that was made in January.”

The Connecticut fiscal formula: Tax your wealthy out of the state and fill the revenue void with smokers and slot-machine players. Not for Alaska.

Want steady and stable revenues? Here’s a second fundamental principle: Create a pro-small-business economic climate, which will create a healthy job market, which will create more tax revenues. Over the past two decades, small businesses created two-thirds of net new jobs. Nearly half of private sector workers are employed at a small business. Small businesses represent 99.7 percent of all firms in the U.S.

Right now, however, that pro-small-business climate is not there. Last year, the National Federation of Independent Business (NFIB) asked its members to rank their top problems and priorities. Half of the top ten problems were related to taxes. Small businesses struggle with federal taxes, tax complexity, frequent changes in federal rules, property taxes, and (except for Alaska at the moment) state taxes.

This would be an appropriate time not to re-institute a state income tax. Not now, while serious and long-needed tax reform is gathering speed in Washington D.C., especially regarding one component of it: Equalizing tax rates for small business and big business.

Small-business owners are extremely pleased by President Donald Trump’s plan to slash tax rates, simplify the tax code, and put Main Street firms on an even playing field with large corporations.

Since November of last year, the NFIB Small Business Optimism index, which measures small business sentiment and economic activity, rose to the highest level since 2004. But the rise in optimism was built on the expectation that the new administration, working with Congress, will reduce the burden of taxes, regulations, and sky-high health care costs.

During the later Obama administration and even now, there are some in Washington who think that only corporate tax rates should come down. That would be a grave mistake. Three-quarters of small businesses are pass-through entities that are taxed at the individual rate. Ignoring these businesses in tax reform, would not only leave small business behind but could also hurt small firms who are important to their communities.

Small businesses are the ones that fund the local sports teams. Small-business owners know all their employees by name and work side-by-side with them. Small businesses get passed from generation to generation. Small-business owners don’t just think about the bottom line.

For many small businesses, their biggest competitors are big corporations. These Main Street entrepreneurs aren’t asking for special treatment; they’re asking to be treated the same when it comes to taxes. Corporations already have certain advantages. They can afford legions of accountants, lawyers, and compliance specialists to make sure they are paying the lowest rates. Multi-national companies have even more advantage in being able to keep money overseas away from the IRS.

The profits of Main Street, Alaska, small businesses stay on Alaska’s Main Street in the pockets of their employees and to the benefit of their communities.

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Related Content: News | State | Alaska | Taxes

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Alaska State Director Denny DeWitt

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