Delegates warm to tax idea

Posted: Thursday, February 12, 2004

FAIRBANKS Delegates to the Conference of Alaskans on Wednesday warmed to using some Alaska Permanent Fund earnings as a source of state revenue, but not as the sole means of closing the chronic gap in Alaska's budget.

Straying from the agenda set out by Gov. Frank Murkowski, most delegates called for other ways to also shore up the state's finances, especially an income tax.

In a straw vote Wednesday evening, 69 percent of delegates said they would support an income tax, while another 13 percent said they might, and 18 percent said they were opposed.

Such revenue measures were not an official consideration, but delegates said spending fund earnings and therefore cutting into the money available for dividends amounted to a tax, no matter what the original intentions for the fund.

''You're taking away money from people involuntarily,'' said Tom Williams of Anchorage, a former Revenue commissioner. ''How we got here is an historical fact. We can't change that. But if you're going to put a tax on people, what is the one tax that you could put on them that will only fall on Alaskans, no one else, and will hit the poor hardest, and leave the wealthy off easiest?''

The answer, he said, was simply cutting into dividends.

''You will be hard-put to come up with a tax as regressive and as limited to Alaskans as cutting the dividends,'' Williams said.

The 55 delegates were invited to the University of Alaska Fairbanks to advise Murkowski on four questions, including whether some fund earnings should be used to pay for essential state services.

Since their initial gathering Tuesday, they have struggled with the narrow agenda and whether to consider other parts to a long-term fiscal plan.

Delegate Clark Gruening said delegates to the constitutional convention nearly 50 years ago backed a territorial income tax to avoid having to go begging at the door of the canned salmon industry. He suggested the Confer-ence of Alaskans recommend the same action.

''I really have a vision that we will now send a message that this state is prepared to stand on its own two feet and not ask a federal government or somebody else to pay,'' Gruening said.

Polled in an afternoon session on their top three choices for how Alaska should fill its fiscal gap, delegates picked the income tax, followed closely by use of permanent fund earnings and increased taxes on the oil industry.

Marc Langlund of Anchorage said if an income tax is adopted, it should not stifle economic development.

''I don't think we can protect the dividend totally at the expense of unreasonable taxation whether it would be on individuals or corporations or special type industries.''

Not all delegates were in agreement.

Bob Bell, a former Anchorage assembly member, said once the conference opens itself up to talking about broad-based taxes, it should then have to consider spending caps and dedicated funds.

''When you turn those spigots on, how do you control the flow?'' he asked of income tax and spending fund earnings. ''The answer is, you don't. The gap closes and you're off on another spending spree.''

The income tax question was spurred in part by a presentation by former Gov. Jay Hammond. He is pushing a plan for distributing permanent fund earnings as higher dividends, then recapturing part of that for state spending with an income tax.

Restoring the income tax would capture money from out-of-state workers and again give Alaskans an incentive to keep a lid on state spending, Hammond said.

''We had dropped in our laps a monstrous golden goose egg,'' Hammond said. ''How we either burnish, tarnish or crack it wide open will leave a legacy for years to come.''

The income tax could be capped at the amount of people's dividends, Hammond said, or not capped at all.

The income tax would be suspended whenever the balance in the Constitutional Budget Reserve exceeded $1 billion.

Hammond said the plan protects Alaskans who need the dividend the most, and with a cap in place, would not dip into the paychecks of people with higher incomes.

Delegates gave Hammond a standing ovation as he concluded.

Dan Dickinson of the Alaska Department of Revenue followed and presented figures that called into question the ability of Hammond's plan to cover a fiscal gap if oil prices declined. The dividends of virtually all working Alaskans would be consumed by the tax, Dickinson said, with those with little or no income receiving checks that could be double the current dividend size.

The morning began with Mur-kowski's budget director, Cheryl Frasca, presenting a possible budget a year from now if the state finds no revenue solutions.

Frasca stressed it was closer to a worst-case scenario than any sort of plan, but the consequences were dire: cuts of school bond reimbursement and bus costs in education, dissolution of power cost equalization, which subsidizes power rates in rural communities that have not received the benefit of government subsidized power projects or grids, and elimination of public television and radio grants.

Senate Minority Leader Johnny Ellis said he heard the same thing last year when Murkowski was pushing a statewide sales tax. He said the presentation was a scare tactic to manipulate delegates into backing some spending of permanent fund earnings.

''To me, a one-legged stool permanent fund earnings is unacceptable. I think it's going to be unacceptable to this group, too,'' Ellis said.

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