Taxes for higher-income Anchorage residents would increase more than taxes for middle- and lower-income residents under a municipal sales tax initiative proposed by a coalition of Anchorage business and civic leaders. However, middle-income residents would pay three times the percentage of income as higher-income residents, and only one-fourth of the percentage paid by lower-income residents. These are some of the findings of a new report prepared by ISER economists, Matthew Berman and Noah Burke, for the Anchorage Economic Development Corporation (AEDC), coalition coordinator. (1)
The proposal would levy a one percent retail municipal sales tax set to expire in six to ten years. The tax includes several exemptions intended to reduce the impact on lower- and middle-income households. Two-thirds of the revenues collected by the tax would be allocated to reduce property taxes. The remaining one percent of revenues would fund an array of capital projects with the goal of revitalizing the city.
The study estimates that the tax would raise $180M annually (in 2023 dollars), which would enable property taxes to be reduced by 20 percent. Those totals are similar to the findings of two previous studies.2 The new study also relied on the same data sources as the earlier studies, tapping data from the Consumer Expenditure Survey (CES)—a national survey of income and expenditures conducted by the US Census Bureau for the Bureau of Labor Statistics—for information on spending patterns of Anchorage households. Unlike previous studies, the new report accessed data from anonymous individual CES survey records, which enabled the authors to examine how the tax would affect households with different incomes.
Sales taxes are widely seen as regressive, meaning that the tax burden decreases as the percentage of income as income rises. The proposed Anchorage tax is also highly regressive and spending patterns of Anchorage households show that the proposed exemptions from taxation are relatively ineffective in reducing the relative burden on low- and middle-income households. The study estimated that households with incomes in the lowest 20 percent would pay on average $240 per person per year in sales taxes, or 3.4 percent of income. Middle-income households would pay $385 per person (1.1% of income), and households with incomes in the highest 20 percent would pay $733 per person (0.7% of income).
Property tax reductions and net taxes paying for capital projects would differ for Anchorage households with different incomes. Property taxes are regressive nationally but appear to be less so in Anchorage. It turns out that the property tax relief would reduce the impact a lot more for higher-income households than it would help lower-and middle-income households. Higher-income residents are more likely to own their homes. Many low- and middle-income residents also own their homes, but those homes tend to be of lower value and therefore have smaller property tax reductions. Lower-income households would get back an average of $96 per person per year (1.1% of income) in property tax relief, middle-income households would receive $192 (0.5% of income), while upper-income households would get $511 per person per year (0.5% of income). The net tax burden on lower- income households would average $145 per person annually (2.3% of income), compared to $193 per person (0.6%of income) for middle-income households, and $222 per person (0.2% of income) for those households with earnings in the top 20 percent of income.
The revenue estimates, property tax reductions, and effects for Anchorage households at different income levels will change as the Anchorage Assembly modifies the proposal before putting it on the ballot for a vote in a future municipal election. But based on the initial proposal, visitors to Anchorage would contribute a little more than one-fifth of the total sales taxes, with residents paying the remaining four-fifths.
Non-residents, including owners of commercial property like ConocoPhillips Alaska and retailers such as Walmart and Costco, would also receive some property tax reductions. Non-resident
individuals and corporations own about 15 percent of taxable assessed property value, including 11 percent of commercial property and four percent of rental housing. Overall, Anchorage owner-occupied homes account for only 41 percent of taxable property value which could see property taxes reduced. Commercial property represents 31 percent of taxable property value, with rental residential property accounting for the remaining 28 percent.
Property tax reductions would benefit low- and middle-income households more if landlords passed property tax cuts to renters. The study concludes that renters would likely see little if any benefit, though. Competition among landlords to attract tenants is required for rents to fall, and Anchorage vacancy rates are low. The population in the greater Anchorage metropolitan area is growing, despite population losses elsewhere in the state. But that growth is occurring in the Mat-Su Valley, due to limited supply and high cost of housing in Anchorage. Measures considered by the Anchorage Assembly to boost housing supply may have some effect, but it would take several years for there to be enough new construction to affect rents, and the tax is temporary. Even if there were some effects after a few years, the impact would be relatively modest. If one-fourth of the 20 percent reduction in property taxes landlords received were passed along to renters through rent reductions, the average net tax payments for the lowest- income 20 percent of households would fall from 2.3 percent of income to 2.1 percent and from 0.6 percent of income to 0.57 percent for middle-income households.
1 Berman, M., Burke, N. Effects on Households of a Proposed Anchorage Municipal Sales Tax. Institute of Social
and Economic Research. October 2024.
2 Klouda, N. Sales Tax Estimates for the Municipality of Anchorage. Anchorage: University of Alaska Center for
Economic Development, August TIP Strategies, Inc. Choose Anchorage: A Framework for Revitalization.
Anchorage Economic Development Corporation, November 2022. Project Anchorage. Project Anchorage Revenue
Estimate: 2024 Update.
For more information, please see Effects on Households of a Proposed Anchorage Municipal Sales Tax. Executive Summary (7 pages) Full Report (45 pages).
