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Homer lawmaker introduces bill creating Alaska income tax as aid in countering deficit

  • Author: Nathaniel Herz
  • Updated: September 28, 2016
  • Published April 3, 2015

JUNEAU -- A Republican legislator has proposed a state income tax as a way of coping with Alaska's multibillion-dollar budget deficit and quickly dwindling savings accounts.

Rep. Paul Seaton, R-Homer, introduced his legislation Friday.

The measure, House Bill 182, would tax income received from a source within the state at a rate of 15 percent of a person's federal income tax payments. It also includes a section that would tax capital gains, like from the sale of property or investments, at no more than 10 percent.

The tax would take effect Jan. 1. House Speaker Mike Chenault, R-Nikiski, referred the bill Friday to the House Finance Committee, where it hasn't yet been scheduled for a hearing.

Alaska once had an income tax, but it was repealed in 1980 as the state received a huge boost in revenues from the new North Slope oil leases. It's now one of seven states without an income tax.

Seaton's proposal comes as Alaska's income tied to oil -- which accounted for 90 percent of the state's unrestricted general-fund revenue in the last full fiscal year -- has dropped sharply with the recent fall in global prices. The budget deficit is close to $4 billion.

With taxes notoriously unpopular in Alaska, discussions about reinstating an income tax have gone nowhere in the past, and legislative leaders here have said they want to slim down the government before examining other ways to close the budget gap.

But some experts and the Legislature's own fiscal analyst say that at its current level, the deficit can be closed only by combining cuts with increased taxes and pulling some money from the Alaska Permanent Fund.

"You can put blinders on and say we're only going to talk about cuts," Seaton said in an interview Friday. "That's not the balanced way of achieving a balanced budget."

As a moderate coastal-area Republican, Seaton has one of the safest seats in the Legislature, and he says his constituents support his proposal. The bill is co-sponsored by another member of the Republican-dominated House majority, Rep. Bryce Edgmon, D-Dillingham.

The bill would raise between $600 million and $1 billion if it passes, according to an estimate by Seaton's office. It would also repeal a state tax credit on political donations that's still in place from Alaska's old income tax.

Seaton said he'd been given a commitment that his bill would get a hearing in the House Finance Committee. And he said he's heard support from some of his colleagues, though with the exception of Edgmon, he declined to identify them.

Several other House members -- both Republican and Democratic -- said they don't support an income tax, including Speaker Chenault.

Asked what he thought of Seaton's bill, Rep. Lance Pruitt, R-Anchorage, laughed. He said he didn't want to take the "easy way out" of the state's fiscal predicament, and added that he expected other legislators to remain equally skeptical of the concept until the Legislature makes more cuts.

"We've all seen the models. But I think there's still quite a few people that would agree with my notion that we haven't gotten spending right-sized and it might be a little premature," Pruitt said. "It's always easier to take money or generate other revenue than it is to make the tough decisions of getting your house in order."

Democrats were even more critical, saying they'd prefer to see lawmakers increase taxes on the state's oil and gas and mining industries.

"We have multinational companies making huge profits in Alaska, and now they're shifting that to the backs of working people," said Anchorage Rep. Chris Tuck, the Democratic leader.

Seaton characterized the bill as a "starting point for discussion." And he said he wanted to see Alaskans help cover the costs of a state government that primarily raises its money through taxes on the oil industry -- with some additional revenues from taxes on corporate income, fisheries and the sale of products like alcohol, tobacco and gas.

"In reality, all Alaskans are taking a lot from state government and not contributing anything, monetarily, to this state," Seaton said. "There is no revenue source from probably our greatest resource, which are the people of the state of Alaska."

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