House panel proposes sales tax

Finance Committee to hold hearings, says income tax not an option

Posted: Wednesday, March 20, 2002

JUNEAU -- A statewide sales tax -- and not an income tax -- will be the linchpin of an overall plan to close the state's $1.1 billion budget deficit, House fiscal leaders said Tuesday.

House Finance co-chair Eldon Mulder said his committee will begin hearings this week on a 3 percent sales tax along with other measures to help resolve the state's fiscal woes.

A push by a bipartisan caucus of lawmakers to use an income tax to close the state's budget gap failed to get support from a majority of Republicans in the House, Mulder said.

''And I think that's more or less reflective of most of Alaska,'' Mulder said.

While the move does not rule out the possibility that an income tax bill will surface, it makes passage in the House a much harder task.

Members of the Fiscal Policy Caucus who were backing a 4 percent income tax said they think both bills should be considered.

The group proposed a 4 percent income tax based on the federal taxable income to raise about $360 million.

After hearing several hours of testimony from groups in favor of such a tax, House Finance co-chair Bill Williams told lawmakers Tuesday that an income tax plan would not come before his committee.

House Republicans require the support of 15 members in their caucus to bring a measure to the floor, Williams said. The income tax proposal did not have enough support, he said.

Rep. Bill Hudson, who co-chaired the Fiscal Policy Caucus, became visibly angry after the announcement and argued that an income tax should get aired in committee.

''Just because 15 members of the majority doesn't even want to bring it up, in my opinion, is a piss poor way of developing public policy,'' Hudson said.

The income tax proposal, which is also supported by the Alaska Municipal League and several Anchorage businessmen with the Fiscal Policy Council, now faces an uncertain future in the state House.

It would require at least 21 votes in the House to resurface for debate. Williams said an informal poll of Republicans showed eight in favor of such a tax and it is unclear whether enough of the 12 Democrat loyalists support the plan.

Taxes have been a central theme for lawmakers this session trying to balance the state's $7.3 billion budget in the face of declining oil revenues.

Oil revenues account for about 80 percent of the state's revenues to the state's $2 billion general fund.

In past years, Alaska has relied on its Constitutional Budget Reserve to make up any shortfalls. But that account is expected to be empty by the summer of 2004 and prospects of future royalty settlements to replenish it are nil.

The House Finance Committee plans hearings this week on a number of proposals aimed at closing the state's fiscal gap and weaning itself from dependence on oil revenues.

Two bills would use Alaska Permanent Fund earnings to either support state government or take up the state's share of revenues paid to local governments.

The committee is also scheduled to take up measures to increase the state's alcohol and motor fuel taxes and impose a $100 per employer education head tax.

Gov. Tony Knowles had proposed an income tax along with other tax measures to raise $400 million and get the state a third of the way to a fiscal solution.

Hudson and several other lawmakers argue a sales tax would hurt the economy of some of the 97 cities and boroughs that already have a local sales tax.

University of Alaska economist Scott Goldsmith told the House Finance Committee Tuesday that an income tax would take less from Alaskans than a sales tax and result in fewer job losses.

Mulder said a tax such as the one proposed by Knowles would mean a significant portion of Alaskans would pay no income tax and still receive a large dividend.

''We all know taxation is going to have a negative effect on our state's economy. I think that discussion becomes overshadowed by the feeling within the population that everybody should pay some share of the burden,'' Mulder said.

House Finance Committee members plan to hold hearings on the tax plans this week and try to get a package of tax plans to the floor by next week.

In the meantime, Hudson said he will continue to muster support for an income tax plan in the House.

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