Income tax could cost family of four $1,150

Posted: Sunday, January 20, 2002

ANCHORAGE (AP) -- Gov. Tony Knowles' proposed income tax would cost the average Alaska household about $1,150, according to administration estimates.

The governor's staff is drafting legislation that would tax Alaska residents at 18 percent of their federal tax.

Assuming a four-person household with two children, a total income of $65,000 and normal deductions for property taxes, a mortgage and charitable giving, the state would take 18 percent of the roughly $6,500 in federal taxes the household would pay.

That's about $1,150, said Larry Persily, deputy revenue commissioner.

The tax burden on individuals would vary widely depending on income and deductions plugged into the tax return. Though the Knowles plan proposes a flat rate of 18 percent, because the tax piggybacks the progressive federal tax rate, it would take the greatest amount from people who make the most money.

''We need to take a look that distributes taxes in a progressive way. That means income taxes,'' said Knowles spokesman Bob King.

According to an Anchorage Daily News analysis, a single homeowner living in Anchorage also making $65,000 a year who takes standard deductions may pay $1,738.

A single mother with a child who rents a home and takes in a gross income of $25,000 may pay no federal taxes and, therefore, nothing under the proposed plan.

A household of four with an income of $400,000 a year and few, if any, deductions would pay a federal tax rate of 38.6 percent on that income. That family would pay more than $22,000 in state taxes.

The Knowles administration believes the proposed income tax would bring in $350 million a year.

Alaska last collected income taxes in 1979. Under the old scheme, which was disbanded as oil revenues from the newly opened Prudhoe Bay oil field began flooding into state coffers, residents paid a variable tax after deductions. The tax bracket depended on total income, with high earners paying more.

The Knowles administration pitched its proposed plan as about half as burdensome as the old scheme. According to Revenue Department estimates, if the old income tax structure were reinstated, the state would collect more than $750 million.

Alaska is one of only seven states without an income tax, Persily said. Vermont and Rhode Island are the only states with a structure like the Knowles proposal of a flat rate based on the amount of federal taxes paid. Rhode Island's rate is 25 percent. Vermont's is 24 percent.

Persily said the Revenue Department had not done an analysis to compare the Knowles' tax rate to other states'. ''Eyeballing it, I'd say the rate is somewhere in the middle,'' Persily said.

Republican leaders in the Legislature expressed doubt whether an income tax is the best first step to raise large amounts of new revenue.

''Based on the most recent poll data, the broad-based sales tax appears the least objectionable. (Using) the Permanent Fund (earnings) appears most objectionable. Income taxes are somewhere in between,'' said Sen. President Rick Halford, R-Chugiak. Halford supports a tax on alcohol and cruise ship passengers. But first he and other Senate Republicans want a constitutional amendment that would limit spending increases.

Rep. Eldon Mulder, R-Anchorage and co-chairman of the House Finance Committee, said that imposing an income tax without capping the Alaska Permanent Fund dividend ''amounts to nothing more than extending a welfare program.''

Mulder said that in addition to using the fund earnings, leaders should consider a sales tax, in particular one imposed during the tourist-heavy summer months.

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