JUNEAU — House Republicans on Monday unveiled the latest revenue-generating idea that could help close Alaska's $4 billion budget deficit: a 35 percent tax on the Permanent Fund dividend.
House Bill 376 is sponsored by the House Labor and Commerce committee, chaired by Soldotna Republican Rep. Kurt Olson, a close ally of House leadership.
The bill would have raised about $465 million had it been in place this year, Olson said in an interview. As written, the tax will remain in effect for four years before sunsetting out.
Olson said the legislation was designed as a stopgap measure to generate cash for state government so that lawmakers can take more time to study broad structural changes to the Permanent Fund and its dividend program, which paid out $2,072 to each qualifying resident last year.
Several of the larger Permanent Fund proposals — from Gov. Bill Walker; Rep. Mike Hawker, R-Anchorage; Rep. Paul Seaton, R-Homer; and Sen. Lesil McGuire, R-Anchorage — are in play during the current legislative session, but "none of them were simple," Olson said.
"This one's simple," he said. "The whole intent of it was to buy us four years to do the plan right."
Olson's bill would be more regressive than some of the other proposed tax and Permanent Fund legislation because it taxes each dividend recipient equally, without regard for overall income. Generally, the wealthier a person is, the smaller the percentage of income that would be taxed by Olson's proposal. Low-income residents would feel the bite much harder then the rich.
Olson's proposal also wouldn't apply to non-residents who earn income in the state.
Seaton, by comparison, has proposed a tax on income earned by both residents and non-residents, in tandem with a Permanent Fund tax credit.
The income tax would be set at 15 percent of a worker's federal liability. The state rate would follow the U.S. tax rate, getting progressively steeper as the taxpayer's income rises.
Dividend payments for qualifying residents would then be applied as a credit to their state tax bills under Seaton's proposal, with any balance left over being paid out. Nonresidents would still be taxed on income they earn from a source in the state but they wouldn't receive the tax credits.
Olson speculated that there would be "blowback" to his proposal from Bush communities.
"But then again, you look at overall, we put a lot of money into the Bush," he said.
Democrats have been pushing for progressive tax measures and increased taxes on oil companies to go along with a restructuring of the dividend program — and they gave Olson's bill an unenthusiastic reception Monday.
"Any plan that just hits the Permanent Fund — which hits the poorest Alaskans, which doesn't ask the oil companies to kick in — is going to be a tough one," Rep. Les Gara, D-Anchorage, said in an interview.
Sen. Lyman Hoffman, D-Bethel and a member of the Senate's Republican-led majority, offered a more succinct opinion: "Bad idea."
With two weeks left in the legislative session, Olson's measure will go right into the mix of bills that could be considered as part of lawmakers' endgame. House Speaker Mike Chenault, R-Nikiski, fast-tracked the legislation by sending it only to the House Finance Committee.
Walker has said lawmakers need to pass a financial plan during this legislative session that cuts spending, restructures the Permanent Fund's earnings and dividend program, and raises new revenue through a broad-based tax.
Asked if Olson's bill would satisfy the last two demands, a spokeswoman for Walker, Grace Jang, said the governor typically doesn't comment on pending legislation. She added, "He is more than ready to work with legislators to pass a comprehensive plan that puts us on a sustainable path this year."
Olson said he expected the measure to get a hearing.