Peninsula Representative Paul Seaton, a Homer Republican, filed a bill Friday to bring back an income tax to Alaska. Representative Bryce Edgmon, a Dillingham Democrat, co-sponsored the bill.
Alaska’s budget is in dire straits. Belt-tightening is happening across the board to compensate for a sharp decline in oil revenue that’s left the state with an immense budget deficit.
Representative Paul Seaton says the hole is so large, cuts just don’t cut it anymore.
“You know, three and a half, four billion dollars of deficit and we know we cannot solve it by just making cuts. [You can] terminate the entire state employee force and we would not get halfway there. So, we need to look at diversifying our revenue sources,” says Seaton.
The state last had an income tax in the 1970s but the growing oil industry and the money it pumped into the economy prompted the state to get rid of it in 1980. Then, the state took a look at reinstating the tax 10 years ago. It was briefly considered and then put to the side. Seaton says his proposal now uses information from that past research.
“I was here during the Murkowski administration in which we looked really carefully and analyzed both a sales tax and an income tax. They both raised about the same amount of money but an income tax was much more efficient to collect; it cost less than half the amount that a sales tax did.”
The income tax he is proposing is based on federal tax rates and brackets. A person would pay to the state of Alaska the equivalent of 15% of their federal tax.
“I think everybody can quickly make their own example. All they have to do is look at last year’s tax form and take 15% of it and that would be what they would pay. If they sent $500 to the federal government, it would be $75 dollars. If they sent $5,000 in taxes, then it would be $750. Now, if you also have capital gains, which the vast majority of people do not have, then you would add 10% of the capital gains.”
Taxes is a buzzword in politics. Voters are often strongly for or against increasing or instating them. Seaton says since he introduced this bill last week, the majority of his constituents that have contacted him have been quite supportive.
He says he thinks that’s because Alaskans are feeling the pressure of the economic shortfall. And he says, it’s becoming clear that the ability to maintain services and programs in the state depends on its one major industry.
“Well, it becomes very volatile when you’re relying only on one source. And we may as well say only one source since I think it’s 92% of our general fund money is coming from taxes and royalties on oil.”
Seaton says this tax is in part bringing home a lesson from other states that have dealt with similar issues.
“It’s hard to maintain responsibility when nobody is paying any taxes. We’re the only state that has neither a state property tax or a state sales tax or a state income tax. So, there is no individual revenue that comes to the state from its residents and so it’s a lot easier to spend somebody else’s money.”
Finally, he says not only would this tax rely on contributions from residents, it applies to non-residents who earn money in-state as well.
“Right now it doesn’t matter if you’re in the tourist business or whether you’re in the fishing business and you’re up here in the summer or you work on the North Slope. All of that money goes outside and nothing is left for the state to help support the infrastructure. So, that brings them into the fold as well.”
Seaton says he doesn’t necessarily expect the bill to pass, but he hopes it will start a conversation about diversifying revenue sources for the state which he says could lead it down a more stable path in the future.