Area legislators consider tax options

Posted: Thursday, May 01, 2003

Rep. Paul Seaton of Homer said Tuesday he believes an income tax would be better than a sales tax for Alaskans and Alaska businesses, but his Republican colleague from the central Kenai Peninsula, Rep. Mike Chenault of Nikiski, says he's not so sure.

An income tax, Seaton said this week in his weekly newsletter to constituents, would be simple to understand and calculate and cheaper to administer than a sales tax. State lawmakers currently are discussing the relative merits of both kinds of revenue generators.

Alaska had an income tax before 1980 when oil revenues from the trans-Alaska pipeline began pouring in, leading lawmakers to repeal it. It was a single-page form filed annually that charged 10 percent of a workers' federal income tax, Seaton said.

"A sales tax requires more bureaucracy and more advanced accounting and computer procedures," he said.

It would require frequent payments, a costly enforcement division, and likely entail conflicts with existing local sales taxes upon which many Alaska municipalities depend.

"For beginners, all local sales taxes would have to conform to the state's sales tax system," Seaton said. Exemptions for food and medicine could end up costing cities a third of their tax revenues.

Combined state and local sales taxes, if high enough, could drive consumers to nontaxable Internet and catalog sales, he said.

An income tax, on the other hand, would not only tax residents, but the 17.8 percent of Alaska workers who are nonresidents. Income taxes also can be deducted from federal income taxes as an expense, while a sales tax would not qualify for such a deduction, Seaton said.

Seaton said he will wait to hear the costs associated with sales tax collection before making a final decision, but he said he believes an income tax would be better than a sales tax.

Chenault said he hasn't made up his mind about which tax mechanism he would favor if it came down to an either-or choice.

"If I had to say, I guess I lean more for a statewide sales tax than an income tax. It gets more money from out-of-state visitors. The state receives virtually no resources from the tourism industry."

Sales taxes are great revenue generators for those municipalities that have them, and visitors certainly contribute to those communities because those taxes are there. But the state, which constructs much of the infrastructure used by tourists, derives nothing directly from their presence, Chenault said. A sales tax would solve that, he said.

A statewide sales tax, however, could be problematic for municipalities such as the Kenai Peninsula Borough and its cities, which depend on sales taxes of their own for significant portions of their revenue streams.

Democrats, who along with many Republicans, attempted to push a revenue plan that included taxes last year as part of the program proposed by the bipartisan Fiscal Policy Caucus, are not in a position to push such policies alone this year.

"We don't control the flow of legislation down here," House Minority Leader Rep. Ethan Berkowitz said Wednesday. "We are not at the helm. We are a trim-tab."

Berkowitz said the fiscal caucus likely was ahead of the general public on the issue of taxes and other revenue generators, but that slowly, that may be changing. For one thing, state lawmakers and the public have yet to see tangible evidence that Gov. Frank Murkowski can deliver on his promise to fix Alaska's struggling economy through resource development, he said.

"People are recognizing that Gov. Murkowski's resource fix won't," he said. "I can't say the public is leaning in a certain direction, but when cuts are inflicted the way they have been, people tend to say, Don't cut me, get revenue from the other guy.'"

Berkowitz said the administration has shown no leadership in formulating a fiscal plan, giving lawmakers nothing to rally around or debate.

The administration's failure to present a viable set of alternatives "has the Republicans feeling nickeled and dimed to death," Berkowitz said.

Thus, state lawmakers have had to put everything including taxes on the table, at least for discussion, he said.

Asked if he could support an income tax or a sales tax, Berkowitz said he'd been wrestling with the issues, but that there were so many things to consider, pro and con, surrounding both ideas.

"I can't give you an answer," he said. "At some point, we will have to choose between the whirlpool and the monster, because in front of us is a waterfall. We are waiting to see the resource development the governor promised.

"The way I see it, it's lead or get out of the way."

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