Alaska Shoots Down State Income Tax Proposal

The Alaska Senate voted down a state income tax that was not only fair but necessary according to supporters and Alaska Natives.
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The Alaska Senate voted down a state income tax that supporters say is not only necessary to help close a multi-billion dollar budget gap but also fair to the state’s rural communities, which have high populations of Alaska Natives.

Many Alaska Native lawmakers and those who represent communities with strong Alaska Native populations have pushed for an income tax, a move they believed would bring fairness to how government services are funded.

Opponents, however, say the income tax is not necessary, not prudent during the state’s recession and would grow government at a time when it needs to be reined in.

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The vote on HB 115 took place May 12 and ended a two-year debate over whether the state should institute its first income tax since 1980.

State Sen. Lyman Hoffman (D), whose district includes Western Alaska communities made up of Yupi’k, Aleut and Inupiaq residents, says the time may still soon come for an income tax.

Just not now.

“At some point I do believe an income tax has to be part of the solution,” said Hoffman, a Bethel, Alaska, Democrat who aligns himself with the Republican-led majority and serves as the Senate Finance co-chair. “The problem is at what level. Right now we should be working on things we agree upon.”

The income tax debate gained traction when the House shifted from a GOP-led majority to a mix of 17 Democrats, three Republicans and two Independents.

Aleut leads 40-person state House

Democrat Bryce Edgmon, an Aleut from the Bristol Bay fishing community of Dillingham, was placed in the role of House Speaker, considered the top post in the Legislature.

On April, 15 Edgmon, who represents about 50 of Alaska's far-flung communities that sit off the state's road system, said lawmakers can no longer rely on continued budget cuts that began three years ago.

In a rare floor speech, Edgmon was among the first to speak on the bill that narrowly passed the House.

“We cannot cut our way to a sustainable future in Alaska,” he said. “I feel very strongly about that. Others feel differently on this floor. I respect that.

“I'm not going to apologize for the fact that smaller communities depend on state government services at a higher per capita level than bigger communities.”

The Republican-led Senate's deficit-reduction plan calls for a spending cap, using earnings from the state's oil wealth fund, known as the Permanent Fund, to cover budgets, and reducing the state's annual payout to residents from those earnings.

Many lower income families, especially those in harsher climate rural villages, count on these dividends to cover daily expenses such as fuel for the winter, paying bills from summer hunting and fishing expenses or covering basic household payments.

A family of four might receive $8,000 under the traditional dividend calculations, but lawmakers have agreed that reducing the annual payout by as much as half will help fund government services, but still keep the dividend payments in place. This means, a family of four’s dividend total could be reduced by as much as half when it’s paid this fall.

Tribal groups tout fairness with tax

While the Senate held hearings on HB 115, which passed the House April 15, 22-18, the House Finance Committee held its own set of hearings offering a review of the state’s economy and what it believes is needed moving forward.

On May 2 the committee heard from the Tanana Chiefs Conference and the Central Council of the Tlingit and Haida Indian Tribes of Alaska.

Both non-profits provide health, housing and public safety services to their respective regions, TCC in the state’s interior and Tlingit & Haida in Alaska’s southeast region. Many services come from federal and state funding.

Representatives from each – coincidentally sisters Natasha and Grace Singh, both of Athabaskan descent – say an income tax with a reduced Permanent Fund Dividend brings fairness to any forthcoming changes that fund the budget.

“The dollar is different to different Alaskans,” said Natasha, TCC’s general counsel. “We must recognize this as we look to solutions to this crisis. While, yes, you can put it in simplistic terms that it could be viewed as fair if everyone contributes through the reduction of their Permanent Fund dividend, but as the economic reports conclude that the dollar isn’t the same to one Alaskan over another.”

She added Alaska Native groups and Alaska Native corporations are often excluded or dismissed from fiscal policy talks.

“We often hear that we want an income tax because we wouldn’t pay for it,” she said. “That’s simply not the case. We want an income tax because that’s what’s best for Alaska.

“We are part of this state and we contribute far more to the economy than we are credited for in discussions about fiscal policy. That said, TCC has numerous critically important intersections with the state budget.”

Grace, Tlingit and Haida’s government liaison, warned that the Legislature needs to be careful with future cuts, which she adds cannot be the lone budget solution.

“I would like to ask you to consider, ‘what’s at stake here?’ if the state cuts funds to these programs or selects a fiscal plan that relies on multiple ear of continued cuts without a complete plan in place to preserve these essential services.”