Knowles proposing 20 percent income tax, other measures

Posted: Tuesday, February 12, 2002

JUNEAU (AP) -- Alaskans would pay a state income tax that's 20 percent of their federal tax bill under a plan being pushed by Gov. Tony Knowles.

Knowles unveiled the specifics of his $400 million tax plan on Monday, detailing how he would begin to chip away at an anticipated billion dollar budget deficit.

The tax plan would come through a mix of taxes on cruise ship passengers, an income tax -- which is $350 million of the package -- and an increase of the state's alcohol tax to a dime a drink.

Knowles, who is in his last year in office, said it is the first step in a three-year plan to close a budget deficit that's anticipated to grow to $1.2 billion by 2004.

''If left unresolved, it will get balanced,'' Knowles said of the state's budget deficit. ''But it is going to do so in a way that threatens our economy, our jobs, families and vital services.''

Knowles also renewed his objection to using Permanent Fund revenues to balance the state's budget before some type of statewide tax has been imposed.

He proposed reinstating Alaska's income tax at about half of its rate when it was repealed in 1979. It would tax income earners at 20 percent of their federal tax bill, less deductions and exemptions.

''The income tax I propose is a simple measure based on a percentage of the income tax paid to the federal government,'' Knowles said. ''It also adopts the progressive measures and incentives of the federal tax system.''

But the plan also comes with a triggering mechanism that automatically reduces the tax rate as the state's fiscal health improves.

Alaska's income tax would be automatically reduced to 10 percent when the state's Constitutional Budget Reserve, the state's savings account, is above $2 billion.

Under the plan, when the reserve account reaches $2.5 billion, the state's income tax rate would drop to 5 percent. Knowles wants to maintain at least $1.5 billion in that reserve account to absorb any sharp drops in oil and gas prices.

The income tax plan would also exempt the 25 percent cost of living adjustment that federal employees in Alaska receive.

A $30 per passenger tax on cruise ships would raise another $20 million for Alaska. Cruise ships bring about 600,000 people to Alaska each year and the industry currently pays no state or federal taxes on their income from passengers, Knowles said.

His plan would apply to all passengers that stay overnight in Alaska waters. But it would exempt vessels with less than 12 berths and state ferry passengers.

Juneau currently has a head tax, which opponents charged was a violation of the state constitution.

Knowles said his plan includes a ''fair share'' provision that would place a corporate income tax on the cruise industry if the passenger tax is struck down.

The governor offered no bill to raise the state's alcohol tax, but instead reiterated his support for a measure sponsored by Rep. Lisa Murkowski, R-Anchorage.

Murkowski's bill would raise the state's alcohol tax to a dime a drink. It is estimated to raise about $30 million.

He called on the Legislature to either take up the measures or propose their own plan to close the state's fiscal gap.

Majority Republicans in the Legislature have been split on what action to take this year.

House Republicans have said they plan to try to craft a package of revenue-raising measures this session to begin closing the state's deficit.

In the Senate, the majority has called for a cap on state spending to be approved by voters before any major tax plan is approved.

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