Alaska: Gov Walker Calls for First Income Tax In 35 years

At the end of last year, Gov. Bill Walker of Alaska released his budget proposal for fiscal year 2017, the New Sustainable Alaska Plan. In a statement released a few days prior, he revealed that it was a major paradigm shift, retooling “how government powers the state economy through continued spending cuts, wealth management, new revenue and investment.” One of the big changes he hopes to implement is an income tax of 6 percent of federal tax liability, which is about 1.5 percent of income for the average Alaskan family. He projected revenue of about $200 million. The income tax would go into effect on Jan. 1, 2017.

In a separate release, the governor lamented the fact that between the time he filed to run for governor and the day he was sworn in on Dec. 1, 2014, oil prices have dropped in half, “taking with it most of our state's revenue.” He and lawmakers responded by cutting $1 billion, or about 19 percent, out of the budget. Conceding that it could take another decade for natural gas revenues to kick in and fill the gap left by the disappearance of oil revenues, Gov. Walker attempted to calm fears by explaining what actions he would take to stem the crisis.

Overall, the governor aims to cut an additional $100 million from the operating budget, and $425 million from oil exploration. In addition, he specified that [t]he plan will change the oil and gas tax credit system into a low-interest loan program, wherein the rates will be determined by the number of Alaskans the companies hire. To honor existing commitments for credits, the FY17 budget allocates $1.2 billion for a transition fund and loan program. The minimum tax on the oil industry will increase by $100 million.

In addition, he is pushing for a tax on the mining, fishing and tourism industries, creating projected revenue of about $47 million, as well as on alcohol, tobacco and motor fuel, for projected revenue of $112 million. Emphasizing the importance of the situation, Gov. Walker declared that $9 million is being drained from the state’s rainy day fund every day.

The New York Times, noting that this is the first income tax to be imposed on Alaskans in 35 years, put it even more starkly, describing the “Alaska-size shortfall” as leaving the state’s finances in tatters because fully two-thirds of the $5.2 billion budget is uncollectable. Oil royalties and energy taxes used to cover more than 90 percent of the state’s needs, leaving enough to pay residents an annual dividend that was at times as much as $8,000 for a family of four.

For now, according to the Times, lawmakers seem to understand the urgency of the situation, though there is already some disagreement about how to fix it. Democrats are worried that the plan would cause working-class Alaskans to suffer disproportionately, while the energy industry’s lobbyists have guaranteed a fight over the proposed tax on oil and gas companies, as well as the reduction in credits. On the other hand, the president of the state Senate, Kevin Meyer, a Republican, thinks deeper budget cuts are still necessary and that residents would accept new taxes only when they are convinced that the old wasteful and inefficient pattern of state spending has been “wrung out of the system.”