New business tax idea: Take it slow and easy
Mayor Mark Begich and Anchorage Assembly chairman Dan Coffey are dangling the prospect of a significant drop in property taxes in front of Anchorage voters and taxpayers.
Even though everyone would love to see their property taxes plunge, this idea demands a hard look. It would merely shift the city’s tax burden, not eliminate it.
Begich and Coffey suggest that a third of Anchorage’s local property taxes could be replaced by a tax on business activities. So if you pay $3,000 in property taxes now, your bill would drop to $2,000. Local businesses would pay the difference.
Citywide, the amount of tax shifted from property to business activities would be roughly $130 million. Many businesses would probably end up paying more in the new tax than they would save on property taxes. Some could no doubt take the change in stride. Others might be hurt by it. (Full disclosure: The Daily News would likely pay more in local taxes than we do now.)
Anchorage’s tax cap, which limits the annual rise in all local taxes, would stay as it is — so the new tax would not yield more money to improve government services.
Mayor Begich and Coffey have picked a committee, mostly business people, to look into the business activity tax and make some recommendations by Sept. 4.
Why should Anchorage bother to consider such a drastic tax restructuring?
Two big reasons, says Mayor Begich.
One is the obvious: Property taxes could be cut by about a third.
Among the largest cities in each state and Washington, D.C., Anchorage’s property tax rates were 15th highest in 2005 for a family of three with household income of $50,000 or $75,000. That’s according to a tax study Washington, D.C., prepares every year.
Second, the business activities tax would greatly diversify the sources of local revenue. Right now, nearly 70 percent of local revenue for schools and city government comes from property taxes. That’s high compared to other cities in the 100,000-to-400,000 population range that the city looked at.
“You’ve got to diversify your mix for long-term stability,” said Begich.
The business activities tax could be approved by the Assembly. It would not have to go to voters as sales taxes do.
In fact, 60 percent of the voters have to say yes for a sales tax to pass. With such a high bar, it’s not surprising that voters have turned down such a tax three times in recent years. The Daily News has long advocated a sales tax because it can get visitors and commuters paying a share too.
There are important reasons not to jump into a business activities tax. It would be a complicated system. Some companies would be taxed on their gross receipts. If that wasn’t a fair measure for a particular type of business, such as an oil company, the city would use a different measure, such as the square footage of operations here.
The tax would cost more money to administer, even though the city’s spending cap would not rise. That means the total amount of money for city services would shrink.
Much of the tax would likely be passed on from businesses to local residents in the form of higher prices. It would act like a hidden sales tax.
Even though our property taxes are relatively high compared to other cities, the total state and local tax burden here is among the lowest in the country. Alaska has no income tax or state sales tax. Anchorage has no sales tax or income tax, either. Then there’s the Permanent Fund dividend. A family of three will collect an estimated $4,700 this fall.
We’ve got it good.
So there’s not a pressing need to tear up Anchorage’s tax structure. With all of the potential downsides, we urge caution in considering whether to add a business activities tax.
BOTTOM LINE: Take care before radically changing the city tax setup. Right now, too many unknowns cloud the picture.
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