House Republican leaders say new revenue proposal has a chance

Posted: Wednesday, May 01, 2002

JUNEAU (AP) -- A new revenue proposal to deal with Alaska's fiscal gap may pass the Legislature this year, according to House Republican leaders.

They say a majority of their 28 members supports bringing a group of revenue bills to a vote on the House floor.

The package includes three proposals.

--A 7 cent per drink alcohol tax increase to raise $24 million.

--A $185 million income tax.

--A portion of Permanent Fund earnings for state spending. The amount is still under discussion but could be $300 million to $950 million per year.

If the measures pass the House, the bills would face a much bigger hurdle in the Senate, where leaders say there is not support among the Republican majority for large, new taxes or use of Permanent Fund earnings this year.

Gov. Tony Knowles supports the proposals. House Speaker Brian Porter said the measures could move to a floor vote Friday.

Tuesday's breakthrough in the Republican caucus represents a major step for new revenues to fill Alaska's fiscal gap.

Ten days ago, new revenues appeared dead after House Republicans turned down a statewide sales tax in their caucus. Knowles resurrected the revenue measures with talks last week and over the weekend.

The crux of the disagreement among legislators has been which statewide tax should be part of the plan. Democrats wanted an income tax. Many Republicans opposed it because of the burden an income tax puts on high-income people. Yet, a handful of Republicans also opposed the sales tax because it undercuts sales taxes in local communities.

The solution that has emerged is a proposal from Rep. John Davies, D-Fairbanks, dubbed the ''Alaska Fair Tax.''

Davies' plan is an income tax that is designed to mimic a statewide sales tax. The rates are adjusted by income so that a person would pay in income tax what a person in the same bracket would pay if a statewide sales tax were in place. Under the proposal, middle-income Alaskans would pay higher tax rates than more affluent neighbors.

The measure is far less progressive than an income tax that Democrats pushed earlier in the session. But the Democrats point out that proposal avoids the heavily regressive sales tax.

Addressing a Republican concern, the Davies' plan avoids putting a large tax burden on high-income persons. Also, the measure would not undercut communities that have local sales taxes, which helped win support from rural Republicans.

Two other attributes sweetened the proposal. The income tax would be deductible from federal income taxes, lowering the amount Alaskans send to Washington, D.C. Also, it would tax outside workers who pay no Alaska taxes.

One snag remains before a House vote: How to use earnings from the $24 billion Permanent Fund? One proposal would take up to $950 million in fund earnings in the first year for state spending. That move would reduce the dividend to about $1,000 a year.

Democrats favor a smaller cut of fund earnings -- $300 million to $400 million per year. That plan would keep the dividend high, at more than $1,200 per year. But it would require more taxes or fund earnings in the future to close the gap, said Rep. Jim Whitaker, R-Fairbanks.

''In two or three years, we'd be back making adjustments,'' he said.

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