Sales tax, Permanent Fund bill move out of House Finance

Posted: Tuesday, March 26, 2002

JUNEAU (AP) -- A statewide sales tax proposal and a bill to use Permanent Fund earnings for state government passed a House committee on Monday.

Both bills now rest with Republican leadership in the House who will set about enlisting support from Democrats this week.

The House Finance Committee on Monday approved a measure that imposes a 3 percent sales tax statewide. Another measure would use earnings from the Permanent Fund for state government.

House Finance Co-Chairman Eldon Mulder said both measures will go ''a long way'' toward closing a budget shortfall estimated to top $1 billion.

The two measures would raise about $400 million in the first year and reduce the state's dependence on oil to fuel its coffers.

House Bill 303 would impose a statewide sales tax of 3 percent and is estimated to raise about $200 million in the first full year it is in place. The bill would take effect Jan. 1, 2003.

House Bill 304 would split Permanent Fund earnings between state government and dividends.

The measure is intended to spend 45 percent of annual earnings on dividends and set aside 55 percent of earnings to use for education and capital projects.

In fiscal 2003, the measure would set aside $300 million for state government and take more in the following years.

Both measures have emerged in recent weeks as key elements in a fiscal plan aimed at closing the state's chronic budget shortfalls.

Alaska counts on oil revenues for about 80 percent of state government's revenue stream. But oil production has been on the decline, falling to about half of its 2 million barrels per day peak in 1988.

The state Department of Revenue estimates that Alaska will run $865 million short this fiscal year and the deficit will grow to $1.1 billion in fiscal 2003.

Past shortfalls have been filled with the state's $2.4 billion Constitutional Budget Reserve. But that fund is expected to be drained by 2004, the state Department of Revenue said.

Republicans said early in this session that any fiscal plan would need Democrat support to be successful. A core group of Republicans in the House remain opposed to any new taxes this year and getting the required 21 votes from the House will require bipartisan support.

''They can't jump off the cliff by themselves,'' said Rep. John Davies, D-Fairbanks.

Democrats charge that the sales tax affects low-income Alaskans more than it does the more affluent. An analysis by the state Department of Revenue supports that argument.

It shows that a sales tax that raises $240 million would cost a single parent working for $11 per hour about $400 a year. While an income tax bill based on adjusted gross income would cost that same person $323 annually.

''If you are part of the working poor, it hits you very hard,'' said Rep. Eric Croft, D-Anchorage, who voted against the plan.

But some Republicans argue that the sales tax is fair since all Alaskans will pay it unlike an income tax which exempts some segments of society.

''I don't know how better to define fair,'' said Rep. Jim Whitaker, R-Fairbanks, the sponsor of the sales tax measure.

Davies and Croft also objected to the way Permanent Fund earnings are divided. They wanted earnings to be split 50-50 between dividends and state government.

Davies and Croft argue that ultimately dividends will be reduced and the sales tax will fall on the working poor, causing them to be affected in two ways.

Davies said it remains unclear whether there is enough support in the Democrats' camp to approve the bill. Republican leaders plan to begin negotiations with Democrats on passing a fiscal plan this session.

Meanwhile, an income tax bill backed by key Republican moderates and Democrats could surface during floor debate.



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