In Alaska, Low Oil Revenue Sparks Income vs Sales Tax Debate


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The decline of oil tax and royalty revenues in Alaska, which once funded the state government with money to spare, has created a multi-billion-dollar revenue shortfall that the state’s lawmakers have struggled to address.

To shore up the state’s finances, lawmakers are weighing whether to institute a personal income tax for the first time in 35 years, enact a sales tax, which the state has never had before, or a combination of both.

Gov. Bill Walker called Alaska lawmakers back to the statehouse this week for yet another special session. Late last year, he put forth a New Sustainable Alaska Plan (PDF), including a proposal to reinstitute a personal income tax. He also recently broadened the scope (PDF) of the debate to include a proposal for a statewide sales tax, under HB 5004.

ITEP released a report today that weighs the pros and cons of a personal income tax versus a general sales tax as a means to address Alaska’s massive budget gap. The brief, “Income Tax Offers Alaska a Brighter Fiscal Future” lays out five key facts Alaskans and their elected officials should keep in mind as they weigh the merits of these two policy options:

1)      Most Alaskans would pay less under a personal income tax than a sales tax.

2)      Personal income taxes are more equitable than sales taxes.

3)      Personal income taxes generate a more sustainable revenue stream than sales taxes.

4)      Sales taxes ask far more of families living in rural Alaska.

5)      Personal income taxes lay the groundwork for economic growth.

Read the report to learn more about the benefits of a progressive income tax.

Alaska’s legislators have thus far shown little willingness to pursue sweeping tax changes. Rather than continue to delay action, Gov. Walker partially addressed the gap last month with cuts to state spending and a sharp reduction in tax breaks for the oil industry. He also capped the state’s Permanent Fund dividend–a flat dollar payment that most Alaskans receive each year–at $1,000 per person, a reduction of more than 50 percent relative to last year’s $2,072 dividend.

The governor’s hard choices will be painful for many Alaska families, but also will undoubtedly serve as a starting point to ease the state’s dire fiscal situation. Yet even with these deep cuts, the need for large-scale, comprehensive tax reform remains.

In a recent report, “Distributional Analyses of Revenue Options for Alaska,” ITEP warned that a dividend cut would be steeply regressive and disproportionately affect low- and middle-income families who rely on the income that payment provides. Now that Gov. Walker has moved forward with dividend cuts and is weighing a general sales tax that would fall more heavily on average Alaska families, the need to find revenue options that provide some balance is more important than ever.

Reinstating a personal income tax remains the single-most powerful counterbalance to all of the regressive options on the table. Rather than wait for a new oil boom, Alaska should  adopt a tax system that serves Alaskans in the short- and long-term, diversifies its revenue system, and shifts the state away from the boom-and-bust cycle of oil prices.

How the range of tax and spending changes under consideration will affect Alaskans of all income levels should be on the forefront of lawmakers’ minds as they resume work in Juneau this week. Unfortunately, the vast majority of available options would primarily impact low- and middle-income families. Given that reality, enacting a personal income tax alongside other policy changes will be essential if lawmakers are to have any hope of crafting an equitable, sustainable solution to Alaska’s budget woes.

Read the report here.

 

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