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Governor announces details of tax plan ahead of yet another special session

(KTUU)
Published: Sep. 22, 2017 at 3:13 PM AKDT
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If at first you don't succeed, try, try, try again.

Gov. Bill Walker apparently took that old adage to heart and for the fourth time this year is sending lawmakers to the Capitol for a 30-day special session to try and implement a broad-based state tax on Alaskans for the first time in decades. Walker, an Independent, also placed a bill on the call that would overhaul Alaska's approach to punishing criminals.

The Democrat-led House and Republican-controlled Senate never reached consensus on a progressive income tax, sales tax, motor fuels tax, or the various industry tax hikes the governor suggested over the past few years. The pitch this time around is for a 1.5 percent payroll tax that is capped at twice the amount of the Permanent Fund dividend.

Companies would automatically pay the tax on behalf of employees, similar to the way Alaska employers currently deduct unemployment insurance fees.

Fifty new state workers would need to be hired by the Revenue Department to administer the tax, according to the governor's revenue commissioner, who also said the scheme is expected to generate $300 million a year, cash the governor adamantly believes is necessary to deal with the $2.5 billion a year deficits the state is staring down.

About 15 percent of the new government income would come from non-resident workers who spend part of the year in Alaska, a common practice among summer tourism workers and those who work rotational schedules in the energy and health sectors.

Because the tax would only apply to income that meets the federal definition of wages, retirement income such as Social Security benefits would not be taxed, and neither would money from Permanent Fund dividends, income from capital gains, or any form of government subsidy like unemployment benefits.

Below is an example of how much individuals of various income levels would pay the state under Walker's plan at the current dividend amount of $1,100:

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$25,000

: an individual earning this amount in wages would owe the state $375 in payroll taxes but would still receive an $1,100 dividend, a net gain of $725.

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$50,000

: an individual earning this amount in wages would owe the state $750 in payroll taxes but would still receive an $1,100 dividend, a net gain of $350.

-

$75,000

: an individual earning this amount in wages would owe the state $1,125 in payroll taxes and would owe the state a net of $25 after accounting for the $1,100 dividend.

-

$100,000

: an individual earning this amount in wages would owe the state $1,500 in payroll taxes and would owe the state a net of $400 after accounting for the $1,100 dividend.

-

$150,000

: an individual earning this amount in wages would owe the state $2,200 in payroll taxes and would owe the state a net of $1,100 after accounting for the $1,100 dividend.

-

$200,000

: an individual earning this amount in wages would owe the state $2,200 in payroll taxes and would owe the state a net of $1,100 after accounting for the $1,100 dividend.

Even if the plan is enacted, the state would still have a structural deficit of $200 million to $500 million moving forward, Revenue Commissioner Sheldon Fisher said.

The governor was traveling and unavailable for an interview with Channel 2 News on Friday, a spokesperson said, but he said in a news release that he remains adamant that new revenue is necessary sooner rather than later: "It’s clear that we must find a new source of revenue to pay for troopers, teachers, transportation and other essential services," Walker wrote. "Under this proposal, Alaskans would pay the lowest taxes on a nationwide basis. No other state currently has a cap for a maximum tax rate."

"This is a compromise," Fisher added. "It is something that is intended to be acceptable across the political spectrum."

All groups with sway in the Capitol agree that Permanent Fund dividends should be limited to smaller amounts than what is called for in statute: the governor vetoed half of last year's dividends, and this year lawmakers only appropriated half of what is called for in state law. No structure has been agreed upon to draw from the state's largest savings account to help pay for government year after year.

Still, as evidenced by Walker's many unsuccessful attempts to pass a tax, it will take an uphill battle if the payroll tax is ever to be anything more than just another idea.

On the House side, it remains unclear if progressive Democrats who are part of the majority caucus will be comfortable with the fact that the highest income earners in the state would pay a smaller portion of their income under Walker's new plan than poor Alaskans.

House Speaker Bryce Edgmon, D-Dillingham, said in a news release that his "number one goal is to respond to the ongoing fiscal crisis and recession by developing and passing a comprehensive fiscal plan. However, our commitment in the House is meaningless unless the Senate follows suit," he wrote.

Republicans who control the Senate have staunchly opposed new taxes and instead prefer to pay for government deficits by drawing down savings.

Senate President Pete Kelly, R-Fairbanks, did not summarily reject the idea of a payroll tax and said his caucus "welcomes additional discussion on the state’s fiscal problems, which we believe are best addressed by reducing government budgets and instituting a spending limit," he wrote in a news release.

Toward that end, Kelly asked the administration to provide a revised revenue forecast that accounts for the recent increase in oil prices and production, as well as an operating budget for the coming fiscal year that includes cuts, he wrote in the release.

"We want to make it clear that any ‘complete plan’ to address our fiscal problem cannot solely reach into Alaskans' pockets for more government money, but must include budget reductions," Kelly wrote. "Government has to do its part.”

Lawmakers are scheduled to return to Juneau on October 23 and could theoretically meet until the day before Thanksgiving, though it is possible that one or both chambers could primarily work from Anchorage.

While the governor would like action on his tax proposal, lawmakers may instead focus on the other bill he placed on the call for the special session: S.B. 54, a criminal justice reform bill that calls for harsher penalties for Class C felonies, a reversal from the rules put in place in 2016 by S.B. 91 which attempted to reserve harsh prison sentences only for instances when data suggests they actually work.

There has been public outcry in recent months as criminal activity has steadily increased, a trend some attribute to certain changes made in S.B. 91, as well as the continuing economic recession, the high rates of doctors prescribing opioid painkillers which leads to abuse and heroin use, and an array of other factors.