Here's what the governor-endorsed 'head tax' would mean for Alaska

Published: Jun. 6, 2017 at 8:04 PM AKDT
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One of the key reasons Alaska lawmakers are six weeks into overtime and flirting with a state government shutdown is disagreement over the necessity of a broad-based tax on individuals.

Gov. Bill Walker, seeking common ground on a compromise fiscal plan suggested Monday to include one possible revenue measure that received little attention in the first 140 days of session: a so-called education head tax.

Republicans who lead the Senate have argued all year that a new tax is unnecessary, that it would over-capitalize state coffers. The governor and Democrat-led House, on the other hand, believe a tax is needed for a variety of reasons: to help close the immediate $2.5 billion budget shortfall, to avoid years of fiscal uncertainty, and to make it so Alaskans start paying for government services they receive.

A progressive income tax was voted down by the Senate in May, an extremely rare move, and a personal sales tax also failed to attract broad support.

Enter Sen. Click Bishop's S.B. 12, a bill quietly introduced by the Fairbanks Republican in January that has received zero committee hearings and little public attention since.

While the proposal is dubbed an "education head tax," the suggested tax is remarkably different than the flat-rate school tax Alaskans paid until 1980. Under a true head tax, everyone would pay the exact same amount.

S.B. 12, however, would increase based on how much an individual earns:

(1) less than $20,000, the tax would be $50 a year;

(2) $20,000 to $49,999, the tax would be $100 a year;

(3) $50,000 to $99,999, the tax would be $200 a year;

(4) $100,000 to $499,999, the tax would be $300 a year;

(5) $500,000 or more, the tax would be $500 a year.

Even though the tax graduates based on income, the measure is actually regressive: someone who earns just under $20,000 would pay state government two-tenths of one percent of their income compared to someone who earns $1 million a year, who would pay five-hundredths of one percent of their income.

Another feature of Bishop's bill is that most Alaskans would not pay the tax directly but rather would see the amount they owe deducted from their paycheck once a year, something that would cut down on the number of state workers needed to manage the system versus an income tax. Bishop, in a statement, said the bill as written would generate about $51 million. Revenue Commissioner Randall Hoffbeck put the expected revenue closer to $70 million when he mentioned the bill's impact on the bottom line in a news conference Tuesday.

But House Speaker Bryce Edgmon, D-Dillingham, told reporters on Monday that he believes the governor's overall compromise plan falls short of generating the revenue needed for his members to agree to the deal. Beyond S.B. 12, Walker suggests tapping Permanent Fund earnings, increasing motor fuels taxes, ending cash payments made by the state to oil and gas companies, and keeping government spending levels what they are now.

"We're still going to have a tremendous deficit. We're still going to be draining significantly from dwindling savings accounts," Edgmon said of the overall plan, veering away from saying absolutely "no" to a version of S.B. 12.

In addition to that line of questioning, another criticism is likely: the Alaska Constitution does not allow the Legislature to dedicate funds for a specific purpose, meaning that any revenue generated from the "head tax" could easily to pay for any government services if a future Legislature believed it was necessary.

Senate President Pete Kelly, R-Fairbanks, declined an interview to speak about the governor's compromise proposal but in a statement said that his members remain "strongly opposed to an income tax." Kelly did not say whether he considers S.B. 12 an income tax.

"We have requested additional detail on his proposal," Kelly wrote. "We are pleased to see the Governor agrees a small structural deficit – easily absorbed by reserves – such as the Senate included in its fiscal plan, is acceptable."

Whether S.B. 12 or any of the governor's suggested compromises come to fruition, lawmakers must make tough decisions, and soon. No other compromise plan has been detailed or even hinted at publicly, and state government will shut down in just over three weeks if an operating budget still has not passed.