House Republican leaders say new revenue proposal has a chance

Posted: Thursday, May 02, 2002

JUNEAU (AP) -- A plan to use an income tax, permanent fund earnings and an alcohol tax increase to close the state's budget deficit is expected to go to the House on Thursday, House leaders said.

Earlier this week, House Republicans had found enough support to send the measures to the floor after intense negotiations with Democrats.

House Speaker Brian Porter, R-Anchorage, said the three measures are expected to go to the floor on Thursday.

The package includes three proposals:

--A 7.5 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.

The fiscal package would be used to close a budget deficit that's expected to reach $963 million by the next fiscal 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 and held several meetings with Republican and Democrat House members last week after it appeared new revenue measures were in peril.

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.

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