Alaskans would pay a tax on income for the first time since 1980 under a bill introduced in the Legislature on Friday.
The bill also would draw money from the Permanent Fund to pay for the state government’s budget. And it would set a new formula for Permanent Fund dividends.
The new bill is the biggest visible sign yet of the shift in the majority of the state House of Representatives.
Income tax proposals went no further than committee hearings under the previous, Republican-led House majority.
But the new, mostly Democratic majority may advance the bill quickly.
Homer Rep. Paul Seaton is one of three Republicans who switched caucuses. He also helped write the new legislation, House Bill 115.
“The basic question is: ‘What kind of Alaska do you want to live in?’,” Seaton said. “Our constituents have told us that they want to see an Alaska that has a thriving economy, that has good schools, that has troopers and the court system running well. And without some kind of deficit reduction, broad-based, comprehensive plan, we don’t get that.”
The bill would set the income tax rate at 15 percent of federal liability. For example, a couple with taxable income of $75,000 would pay about $10,000 in federal taxes and $1,500 in state taxes.
The bill would give Alaskans the option of using some or all of their Permanent Fund dividends to pay the tax.
The bill would draw 4.75 percent annually from the Permanent Fund from the fund’s earnings account. That’s a little less than the 5.25 percent draw that Gov. Bill Walker has proposed. One-third of that money would go to PFDs. That would allow dividends to be $1,100 this year, more than the $1,000 Walker proposed.
“The majority caucus in the House formed around the principle of passing a comprehensive, sustainable fiscal plan, and so, that’s what we have,” Seaton said.
Seaton said the bill includes three of the pillars of the new House majority – including new revenue, a draw on the Permanent Fund, and changing Permanent Fund dividends. The fourth element is budget cuts and changes to the oil and gas tax system.
Seaton said the income tax provides balance by requiring higher-income residents to contribute, while the PFD cut affects lower-income residents more.
“So this plan balances those two aspects, so that all families across Alaska are participants and have skin in the game,” Seaton said.
The bill would also tax capital gains at 10 percent. Seaton said his goal was to tax the sale of stocks and bonds at a similar rate as income.
The bill drew swift opposition from minority-caucus Republicans.
Anchorage Rep. Lance Pruitt objected to the bill being sponsored by the House Finance Committee. He said it would be wrong to add an income tax during a recession.
“Now you understand why I don’t want my name associated with this,” Pruitt said. “Now you understand why I don’t want anything to do with a bill that’s going to look — at a time when people are struggling — to say: ‘We need more money from you.’ ”
Wasilla Republican Rep. Cathy Tilton said House Finance Committee Co-chairmen Seaton and Nome Democratic Rep. Neal Foster shouldn’t have used their authority to introduce the bill as committee-sponsored legislation.
“Just because you can, doesn’t mean you should,” Tilton said. “Regardless of what’s been done in the past, (that) does not preclude a new standard of decorum.”
Senate leaders, including Fairbanks Republican Senate President Pete Kelly, have also said they’re opposed to an income tax.
The Senate majority supports $750 million in cuts over three years and a constitutional limit on spending.
But Seaton said the public is willing to pay a tax to avoid deep cuts to government that he says would harm the economy.
Seaton noted that Alaskans paid 16 percent of federal liability before the income tax was abolished. And he pointed to a Senate majority poll that found support for a broad-based tax.
“People are saying, yes, they want to see the Alaska they want to live in and they’re willing to pay an income tax like they used to for that privilege of living here and growing old here,” Seaton said.
The bill is scheduled for hearings on Monday, Tuesday, and Wednesday, and for public testimony Friday, Feb. 17.