Income tax passes House

Alcohol tax, dividends on table

Posted: Friday, May 03, 2002

JUNEAU -- A statewide income tax and a plan to use millions in permanent fund earnings passed the House on Thursday as part of a proposal to close the state's deficit.

The vote was a culmination of months of talks among House lawmakers on closing a budget deficit projected to be $963 million by the next fiscal year.

Lawmakers in the House lauded the vote as historic -- this would be the first income tax in Alaska since 1980 -- but many were realistic.

The plan now goes to the more conservative Senate where opposition to a broad-based tax in this election year is strong.

''I don't expect to see it actually pass the Legislature this year. I think today's action will spur a conversation between elected officials and their constituents,'' said Rep. Eldon Mulder, R-Anchorage.

Mulder, powerful co-chairman of the House Finance Committee, voted against the income tax proposal but in favor of the bill to use permanent fund earnings for state government.

Also included in the package is a bill that increases the state's alcohol tax to 10 cents per drink. The bill would boost the current tax by 7 cents per drink for beer and wine and bring in about $20 million in additional revenues.

Senate leaders have said there's strong support for passing an increase in the state's alcohol tax, which hasn't been raised 19 years, but a Senate measure to do that has not gone for a vote.

Rep. Lisa Murkowski, R-Anchorage, said Alaska leads the nation in alcohol-related deaths and past studies show the state pays up to $450 million annually for costs associated with alcohol abuse.

''Alcohol is killing Alaskans. Even if we didn't have a fiscal gap, it would be the right thing to do in raising this tax,'' said Murkowski, the chief sponsor of the bill.

The alcohol tax bill passed 31-8. Reps. Richard Foster, D-Nome; John Harris, R-Valdez; Jeannette James, R-North Pole; Vic Kohring, R-Wasilla; Pete Kott, R-Eagle River; Beverly Masek, R-Willow; Kevin Meyer, R-Anchorage; and Bill Williams, R-Saxman, voted against it.

The more contentious income tax plan was offered by Rep. John Davies, D-Fairbanks, after Republicans voted down an earlier income tax plan backed by Democrats.

Many Republicans had favored a 3 percent sales tax plan, arguing that it is more fair since everyone pays. But the Alaska Municipal League opposed the measure because 97 communities rely on such a tax for revenues.

''Most of our municipalities in Alaska don't have a significant property tax base, so the sales tax is their only option,'' said Kevin Ritchie, executive director of the league.

Davies plan establishes brackets that generally mimic the tax paid under a sales tax. All Alaskans who file taxes would pay, and wealthy Alaskans would pay a smaller percentage of their income than the middle-class.

For example, a person with an annual income of $24,791 would pay about $467 in taxes, which is about a 1.88 percent rate, while someone with an annual income of $283,772 would pay $3,951, a 1.39 percent rate.

The income tax measure passed by a vote of 24-15. Reps. Mulder, Foster, Harris, James, Kohring, Kott, Masek, Meyer and Williams voted against it. Also voting against it were Reps. Mike Chenault, R-Nikiski; John Coghill, R-North Pole; Fred Dyson, R-Eagle River; Lesil McGuire, R-Anchorage; Carl Morgan, R-Aniak, and Norman Rokeberg, R-Anchorage.

The permanent fund bill changes the way dividends are calculated, using 5 percent of the fund's market value to calculate the pool of money used.

It would split that pool of money 50-50 between government and dividends. In the first year, lawmakers would use $300 million and in 2003 they would use $657 million, under the bill.

Dividends would drop by about $24 for each eligible Alaskan in 2003 and would be $306 less in 2007.

The permanent fund bill passed the House 30-9. Reps. Chenault, Coghill, Dyson, James, Kohring, Masek and Meyer voted against it. Also voting against it were Reps. Harry Crawford, D-Anchorage, and Eric Croft, D-Anchorage.

Sen. Dave Donley, R-Anchorage, said the Senate remains opposed to using the permanent fund to aid state government operations and to a broad based tax.

Instead, the Legislature should put a constitutional amendment on the November 2002 ballot to impose spending caps on government and control spending, said Donley, co-chairman of the Senate Finance Committee.

''Without those first steps, massive new taxes are not going to solve the problem of the budget gap,'' Donley said.

The state Department of Revenue estimates Alaska will have a $826.7 million budget shortfall in July that will surpass $1 billion in fiscal 2004.

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

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 income tax measure is House Bill 303.

The permanent fund measure is House Bill 304.

The alcohol tax increase is House Bill 225.

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