HomeMy WebLinkAboutAPA838THE RELATION OF NON -PETROLEUM REVENUES
TO PERSONAL INCOME IN THE MAP MODEL
SIMULATION OF ALPETCO IMPACT
Milt Barker
THE RELATION OF NON-PETROLEUM REVENUES ·=·.;===--~..:
TO PERSONAL INCOME IN THE
MAP MODEL SIMULATION OF
ALPETCO IMPACT
By Milt Ba~k~~ Legislative Finance Division
The ISER report on the impact of the Alpetco project
met with a flurry of criticism regarding one of its ma~n
conclusions--that the project would result in greater
additional expenditures by the state than the increases
in revenue the State would receive. While major portions
of the increased revenues were exogenous inputs to the
MAP model which was used for the simulations, e.g.,
Alpetco's estimates of corporate income tax liabilities, some
of the revenue increases were derived by the model.
The model categorizes State revenues as petroleum-
related, federal transfers, income from the permanent fund,
and endogenous,meaning those related to general economic
activity. All petroleum revenues are exogenous to the
model; the latter categories are computed by the model.
In Table II.7 from the Alpetco report (appended) the
ratio of endogenous revenues to personal income (RENSRAT)
declines from 9.8% in fiscal year 1977 to 5.8% in FY 2000
in the base case simulation. The report states "the slight
downward trend in this proportion over time is indicative
of the fact that the structure of government revenues in
Alaska does not respond proportionately to an increase in
economic activity."
Table I (appended) displays historical figures for
personal income, some major non-petroleum unrestricted
revenues, and total non-petroleum unrestricted revenues
excluding investment income. The latter category should
approximate that of endogenous revenues used in the MAP
model which appears to include special fund revenues as well
as unrestricted.
Table 2 (appended) displays the revenue figures from
Table I as percentages of personal income. For the period
1961 to 1978, the ratio for total revenues increased
from 5.5% to 7.6%. There is a sub-period from 1965 to
1974 during which the ratio of total revenues to personal
income steadily declined, but upon constuction of TAPS, the
ratio jumped to a new high of 8.8% in 1977. Of course,
the TAPS project being of unparalled magnitude relative
to Alaska's economy may mean that that high may not be
reached again.
However, examination in Table 2 of the main component
of endogenous revenues, the personal income tax, reveals a
more definite upward trend in its ratio to personal income.
This is logical, given that individual incomes have been
rising and that the personal income tax structure is pro-
gressive. Indeed, this fact of an upward trend is re-
flected in recent efforts to index income taxes to avoid an
increasing percentage government take due to inflation.
It appears that personal income in proportion to
endogenous State revenue in the base case simulation
(Table II.7) in 1977, 9.8%, is correct, allowing for special
funds. However, whether this ratio should decline over
time as in the simulation is open for question.
There will be a one-time downtick in State endogenous
revenues due to the repeal of most of the business license
tax. The Department of Revenue estimates this will drop
business license revenues from $21.3 million in FY 79 to
$4.1 million in 1980.
Also, the upward trend in the ratio for personal in-
come will certainly be held in check for the next few years
by tax credits enacted into law in 1978. However, it
should resume its climb thereafter barring indexation (not
unlikely -SB 76 and HB 268 were introduced for this pur-
pose in 1977) or further tax reduction measures. The move-
ment of the personal income tax should be more determinate
of the trend in endogenous revenue in the future since
by FY 1978, it accounted for 48% of all endogenous revenue
up from 28% in 1961.
Of course, what was of concern in the Alpetco report
was not the way the model's assumptions worked themselves
out in the base case, but their depiction of Alpetco's
impact. In Table 3 (appended), the increases in personal
and non-petroleum corporate income taxes generated by
Alpetco are compared to increases in personal income stem-
ming from the project. These figures are derived from
Tables III.4 and III.6 in the Alpetco report (appended).
Alpetco's estimated corporate income taxes are excluded
from non-petroleum corporate income taxes.
From this last table, it appears that the increase in
non-petroleum corporate income taxes relative to increases
in personal income is at the level of recent historical
averages, .7%, over most of the simulation while that for
the personal income tax ranges well below the historical
averages in Table 2. In the absence of legislation, the
ratio for personal income taxes in Table 3 should increase
over time due to the effect of a progressive tax structure
on increasing incomes, both nominal and real.
-2-
However, the ratios in Table 3 are measures of the
marginal responsiveness of taxes to increases in personal
income and should be judged for reasonableness by looking,
not at the average ratios in Table 2, but by some marginal
measures that can be derived from Table 1. For example,
Fiscal Year
1975
1976
1977
1978
Change in Personal
Income Tax as a %
of Change in
Personal Income
5.2%
6.7
20.2
83.1
Change in Non-Petroleum
Corporate Income Tax as
a % of Change in
Personal Income
1.8%
.8
1.3
2.6
Certainly these marginal rates for the pipeline con-
struction ye~rs are only relevant to the construction phase
for Alpetco. Yet, the highest marginal rate of personal
income tax to personal income increases during Alpetco con-
struction is only 3%. Given the cavalier expenditure of
funds for TAPS construction, a proper ratio for Alpetco
would perhaps be less than those experienced during TAPS
construction.
The model might be improved by making income taxes more
responsive to inflation and changes in wage rates, as well
as re-evaluating the direction and degree of a trend, if
any, in the relation of endogenous revenues to personal
income.
-3-
1977
1978
1979
1980
1981
1982
1783
1994
1985
1986
1987
1788
1989
1990
1991
1992
1993
1994
19?5
1996
1997
1998
t999
2000
Tnble II.7.
INDIC \TO:zs OF S'.!:'XG;: ZISCAL POSITl:m·l
BASE C.c:\.SE
SIMP RENSRAT EXBITES VIABL2
240.672 0,098 0.222 0.748
149.935 0,082 0.257 0.658
435.177 0.078 0.257 0.636
814.892 0.072 0.236 0.633
824.85 0.066 0.219 0.61
881.842 0.067 0.232 0.568
903.154 0.072 0.263 0.539
1390.42 0.07 0)255 0.549
1545.1 0.068 0.247 0.551
1591.33 0.067 0.246 0.545
1416. 0.066 0.243 0.54
1185.46 0.065 0.24 0.533
948.235 0.064 0.237 0.526
702.368 0,063 0.237 0.516
469.357 0.062 0.234 0.509
221.125 0.062 0.235 0.5
-15.101 0.061 0.233 0.495
-276.078 0.06 0.23 0.4?
-567.083 0.059 0.227 0.484
-918.563 0.059 0.228 0.475
-1304.77 0.058 0.227 0.47
-1716.03 0.058 0.226 0.465
-2158.43 0.058 0.2?5 0.462
-26~4.8 0.058 0.224 0.459
general fund re'!enu·~s minus gc.·,·,erc~l f·:.'2.d r:;xp:>.nditure,·; (;~illlop $)
endogenous revenue3 an a percentag~ of pe~so~nl incom~ (?ercen~)
SINP
RE~,lSRl~T
EXBITES
VIABL2
= st2te t!Jtal expen·J:U:ure:3 .qs :1. p2•·cei1::age 0f ::'ersone.l L:co·;r.e (p·~rcent)
non-pe':roleuiil rev~n·..1es (not inc!_ud ing pex:rcane:1:: fund ec:.r:1ings)
as a percentage of general fund c;~enditure~ (percent)
Fiscal
Year
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
Sources:
( 1)
( 2)
( 3}
(4)
TABLE I
NON-PETROLEUM UNRESTRICTED REVENUES
($ millions}
Personal Non-Petroleum Business Selected Sales & Licenses, Fees
Personal Income Corporate license Gross Receipts and
Income (1} Tax (2} Income Tax (3} Tax (2} Taxes (4} Permits (2}
657 10 1 1 8 3
651 12 2 1 11 4
693 13 2 2 11 5
745 14 2 2 11 4
842 16 2 3 11 5
886 19 4 3 13 6
972 23 3 3 13 6
1066 23 4 4 15 7
1163 25 4 4 17 7
1350 32 5 5 19 8
1470 36 6 6 20 9
1618 39 6 6 21 9
1840 43 6 7 23 10
2165 49 7 8 25 11
2900 87 20 11 31 14
3774 146 27 19 41 16
4091 210 31 23 40 16
4014* 146 29 22 44 19
u.s. Dept. of Commerce, Bureau of Economic Analysis (fiscal year basis}
Alaska Dept. of Revenue, "Revenue Sources"
Alaska Dept. of Revenue, unpublished data
Total
Non-Petroleum
Unrestricted
Revenue
Excluding
Investment
Income (2,3}
36
42
43
51
64
62
63
68
75
89
95
104
115
132
204
287
362
305
Includes fuel, alcoholic beverage, tobacco products, insurance premiums and electric and
telephone utilities taxes
*Based on Commerce & Economic Development estimate for 4th quarter 1978
TABLE 2
NON-PETROLEUM UNRESTRICTED REVENUES AS A % OF PERSONAL INCOME
Total
Non-Petroleum
Selected Unrestricted
Sales & Revenue
Personal Non-Petroleum Business Gross Licenses, Excluding
Fiscal Income Corporate License Receipts Fees, and Investment
Year Tax Income Tax Tax Taxes Permits Income
1961 lo5% o2% o2% lo2% o5% 5o5%
1962 lo8 o3 o2 lo7 o6 6o5
1963 lo9 o3 o3 lo6 o1 6o2
1964 lo9 o3 0 3 lo5 o5 6o8
1965 1.9 0 2 o4 lo3 o6 1o6
1966 2ol o5 o3 lo5 o7 1o0
1967 2o4 o3 0 3 lo3 o6 6o5
1968 2o2 o4 0 4 lo4 o7 6o4
1969 2ol o3 0 3 lo5 o6 6o4
1970 2o4 0 4 0 4 lo4 0 6 6o6
1971 2o4 o4 o4 lo4 0 6 6o5
1972 2o4 0 4 o4 lo3 o6 6o4
1973 2o3 o3 o4 lo3 0 5 6o3
1974 2o3 o3 o4 lo2 o5 6o2
1975 3o0 o7 0 4 lol 0 5 7o0
1976 3o9 0 7 o5 lol o4 7o6
1977 5ol 0 8 o6 loO 0 4 8o8
1978 3o6 o7 o5 lol o5 7o6
TABLE 3
ALPETCO IMPACT
RESPONSIVENESS OF INCOME TAXES TO INCREASES IN PERSONAL INCOME
Increase in Non-Petroleum
Corporate Income Tax
Fiscal
Year
Increase in Personal Income Tax
as a % of
Increase in Personal Income
as a % of Increase in
Personal Income
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
1.1%
1.4
1.4
1.9
2.1
3.0
2.5
2.2
2.0
2.0
2.0
1.8
1.8
1.6
1.7
1.7
1.8
2.0
1.9
1.9
1.8
1.8
.1%
.2
• 4
.5
.7 (or 1.0%)*
• 8
• 7
• 6
• 6
.6
.6
.6
• 6
.6
• 6
.6
• 8
• 7
.7
.7
.7
*Depends on whether a negative tax liability for
Alpetco for this year as shown in the simulation
is deducted from state tax receipts.
PI F' I NI~F'C i:\PJ f='f<.~T
I. <)"77 o. o. (), o.
1978 o. ()) o., o.
.t 979 71.£-344 3'?. 08<l 0. ::)30 o.no3
1980 247.l41 J. .L 0, 3H3 1 ,tU4 (),i)\)9
:L981 7'57.:1.09 272.2i"3.1 5. ():I.J 0.022
1'102 :l020.05 2?0.375 .S.691 o, o:2n
:l. 9G:3 .1 :U>7. 77 308.207 7.823 0.032
1984 697.16 ~n. FJ59 5, 79,S (),()22
l 9B!'5 !512.164 19.605 4 l > 20~) 0.()1~5
19fJ6 44B.H48 -7.918 :3 + 5S=>4 0.013
1987 4•10. 695 -20.168 J.404 O:.(Hl
:L988 456.371 -2(S + ~~!.23 3.38 0.011
19i39 486.73 ·-29. 762 3. 4::~8 0.01
1990 522.66 -·3.1.. ~524 ;;) • :"5 .1. 0.0.1.
199:1. ~3,:)6. :~8:3 --:_;)2. :1.09 3. 6:1..1> o.o:J.
1.9?2 612 + :32 -31.937 3.734 0.0:1.
1993 <S66, 082 -31.652 3.966 o.ot
1994 726.457 --31.758 3. ()?0 0.009
l9?5 799.941 -·3:L, 805 4 .1.43 0. 00'?
1.996 739.1.68 -4:':i. 789 3 ·> f.>6 o,ooo
1997 737.66:3 ···!::i1.824 3.5()9 0.007
1998 762.18 -:~i3 + 855 ~5 > 476 (),()07
1'/99 803.055 --:54. 277 ~). 499 ;) . ()()()
2000 830.~198 -~):5.316 3. -.:l~j~3 0.006
PI = personal income (million $)
PINRPC real per capita personal iP.COffi2 (Jefla red ;)y RPI)
RPI relative price ind~x for Al<1s !;:,-1. (lJ67US ·-100)
PR.:\T ratio of RPI to u.s. CPI
Note: All variables measured as the difference from the base ease.
Table III.6.
IHPACT OF ALPETCO ON INDIVIDUAL COHPONENTS
OF STATE ENDOGENOUS REVENUES
RENS RT98 RTCSX RTCTS RTBSX RTBt) RTIS
197'/ o. o. o. o. o. o. o.
1'/78 o. o. o. o. o. o. 0 ~
1 ~·'79 0.961 0.961 o. o. 0. 0. O<LS 0. ?_!.;)
1980 ?.904 6.936 0.4 0.757 1. 4 1./.,'/'7 3.~~49
1.981 :~2. :-so7 HJ. 945 0.6 1.894 2.3 3.33'7 10.<7·27
1982 45.H99 35.537 0 .. -+...J -'L641 2.4 5.619 1c/.Do::~
19B3 58.785 44.643 0. ~) 6 • 3<S2 2.6 7.0:l5 .24 \· 33
1 S'84 58. 1 L~> 41.681 -2. 4.826 3.9 d.7U:5 21.31'7
19G::'i 3-i./24 :·30.0·14 o. 4.039 5.8 0 • .cH 13.~·H
198c', ~:i~·;. '7'3!'5 48. i:l~:i!':i 24. 26.929 I t;_-
Cl + ...J 8. 34!:'i J. (). ::!.; 4
l9tl/ 69. 8:L:.!. c>3.cd7 40.4 42. 96!:-i c> .B 8.3'79 'J t :..~ ~·3 ~3
19B8 //.;. /4!'5 70.6,48 4'7.2 49. '7~)4 "7. :~ 8. '7 ·13 9.111'
198'7 8:~. 509 7'7.:1.64 !:5 ~~ • "7 5::'i. 391 7.6 9.19:'.-i 'I • ~)~~ \;
1990 90.45B 83.64B ~)'7.8 60.'745 '7.9 9. \~) 1 i] 1.0,()~>
1 'i'l :1. 98.101 90.73/ 63.2 b6 + 43~) i3. 3 1. 0. l:'.'i4 t0.'?82
1'192 106.314 <;o. :u:=s 68.8 '72.404 8.7 10.732 11 ~ ::;~s3
:1.993 115.378 106.62 7~.). 78. S'H4 9.2 11.4(),~ 12.436
1.994 :1.23. :~~~:-~:3 113.t.~51 79.7 D4~151. 9 +(J :1. :.2 • 0 ~2 ::·j L~. ·~l2
19rl'::'i 134.21 123.f.>49 ti?. 91.9/9 :1.0.:!. 12./f..\9 14. 5~~ 7
:1.9<?6 :1. 4•f. :::j2:~ 132.796 94.4 :LOO. 062 :1.0. 6 :l2. ~SWI 1-4 i 6~.~~3
.1'/('i/ :!. !~j(). 0:'57 l 3 "? v :~~ 6 .!;') 102.3 107.!511 LL l J:~v"/// l ~) ~ '/ ~::j
l99i3 1 !'.'i '? • 4 ·l l4B • ."'.>6 11 :i.. 116.3:i. 1:1..? J l' -'~' .. , C'
, T t ,) I \J 13. ?~'.;::s
1.999 1'70.755 1::'j<J.564 :1. 2 0 • •t 12:'.'j.9f.l9 12.3 l:'5.062 :1.4. 1 'i?
2000 Hl2. 79 1.70.92:3 1 ~~9. 9 135.935 12.9 1!5.820 1•}. 682
REi\S ;;;;; total endogt;!nuus revenues' (million $) RTBSX "" Alp.::tco business lic:.::nso:: La~;es millio.-l $)
RT0H "' tax(;s nl!t of pet:rolecu;,i proJLlC.ciun (million $) RTBS "' i:Otal busin.::::::;;; lic~..:ns~ u:::,.;s (it1 lliun ~i)
l'''!'l''•",' ".; i J · •· ·>. {'r ·•·· ·. • '' '· . ~ ... , ')' ' !' ., '" (• 1 'll' 1.·-' (') ',.:'l,. •'··P~<~<•·!.J •. lll.i'llicd .. !..i dli.,,Ji'"' .. t~.~ ... J ,,,J .Uh ·? 11 •. , ... , 1 ~ ( '11' ·') ,l J.:;i "" pi1.Ct>O!!~~ ~.l:>G•H!i~ J;;;·;llc; ,itl! .• ., l-.,;l :?
~TCTS = to~ul corporate income taxes (million $)
Nole: All variables mcasure.d as the di:fL:~~·ence from the base cas<:!.