Alaska governor proposes state’s first income tax in decades

Gov. Bill Walker is proposing a personal state income tax as part of his plan to close Alaska’s $3.5 billion budget gap, he planned to announced Wednesday.

In laying out his finances plan Wed., Walker additionally proposed using the fund in that gives annual yearly checks to most Alaskans to generate a stream of cash to assist finance state authorities. The plan would change how dividends are calculated and mean lower checks, at least initially – 2016 payouts would be about $1,000 less than this year’s. Mr. Walker, who cut about $1 billion, or 20% from the budget, in the current fiscal year said cutting more “becomes more challenging”.

Currently, Alaska has no state income tax and no statewide sales tax.

Typically the state also pays an annual dividend to residents from the Alaska Permanent Fund. Earnings generated from the fund go toward paying the dividend.

Kara Moriarty, president and CEO of the Alaska Oil and Gas Association, said the prospect of the industry paying more in taxes when oil prices are at their lowest point in years won’t improve Alaska’s chances of bringing new projects online and adding oil to the pipeline. It includes higher taxes on the alcohol, tobacco, mining and fishing industries and changes to the oil tax credit system. Gross production taxes on oil and natural gas were off 54.4 percent last month when compared to November 2014.

State Revenue Commissioner Randy Hoffbeck said lawmakers are welcome to suggest substituting more budget cuts for about $400 million in proposed new and increased taxes. Officials have been warned the state’s bond rating could be lowered if it doesn’t do more to address the deficit.

The governor’s plan would shift the state away from a direct reliance on oil revenue and the boom-and-bust cycle of oil prices. However, on Monday, according to a Revenue Department database, the price slipped to $38.29 per barrel. The Republican-turned-independent governor also recommended some oil tax and credit changes.

He says he hopes Alaskans realize the severity of the situation and he’s happy to take any heat associated with his plan.

In order for the plan to work, the Legislature would need to approve a one-time $3 billion draw from the Constitutional Budget Reserve, another state savings account, the administration says.

Permanent Fund earnings now fund Alaskans’ Permanent Fund dividends.

Several big questions face lawmakers as the legislative session approaches next month: How much more can be cut without losing key services or triggering a recession?