The Alaska House of Representatives passed a statewide personal income tax Saturday. It’s the first of its kind since legislators abolished the broad-based tax in 1980, after state coffers filled with billions of new dollars from the Trans-Alaska Pipeline.
House Bill 115 creates an income tax based on federal adjusted gross income that includes a per-person exemption of $4,000, including dependents. That deduction is reduced proportionally for out-of-state residents earning income elsewhere.
Permanent Fund Dividend checks are also excluded from taxation, and Alaskans can use their PFDs to offset tax liability. Taxation starts after the first $10,300 of an individual’s income. So, a couple filing jointly with two children wouldn’t be taxed for the first $41,600 of their income — according to a calculation provided by Rep. Les Gara, D-Anchorage.
Rep. Paul Seaton, R-Homer, the co-chair of the Finance Committee, estimates the measure will bring in $687 million annually once fully implemented in 2019. Seaton says the proposed tax is the fourth lowest in the nation. Revenues from the measure are directed to education.
The Democrat-led House majority has called for a broad-based tax as part of a four-pillar plan to solve the state’s nearly $3 billion budget gap. Other pillars include cuts to the state budget, use of the permanent fund’s earnings and an overhaul of the state’s oil tax system.
The House has now passed all pieces of its fiscal plan, but the components face steep opposition in the Senate. The Republican majority has vowed not to pass an income tax or a tax hike on the oil industry.
The Senate took the lead on approving use of the Permanent Fund’s earnings as part of long-term budget plan through passage of Senate Bill 26 last month. But leadership has said it doesn’t make sense to tax Alaskans while still paying out an annual PFD check. It has also expressed concerns that the state’s oil tax policy could have adverse effects on oil production in the state.
Republicans in the House also opposed the measure Saturday, offering several amendments before voting against the measure, all of which failed.
Rep. David Eastman, R-Wasilla, proposed a provision that would repeal the tax in the year 2023. Rep. Lance Pruitt, R-Anchorage, suggested Alaskans should be allowed to donate their PFD checks to the state budget using the Pick.Click.Give. program.
Many members said they were concerned about the negative impact of an income tax on Alaska’s economy, in a time of recession.
House Leadership said the goal of the tax is to reduce the state’s dependence on oil, a volatile revenue stream.
HB 115 passed 22 to 17, along caucus lines.
In a statement Saturday, Gov. Bill Walker applauded passage of the measure:
“We have seen far too many businesses close in recent years due to the uncertainty in Alaska’s economy. We must pass a complete fiscal plan this year and stop the draw on our precious savings. This includes continued cuts to the budget, a restructure of our Permanent Fund Earnings Reserve, and new revenue. My administration will continue to work with the legislature to pass a complete plan this session so we can move on to building Alaska’s future.”
Last year, Walker introduced a more modest income tax proposal that failed to gain traction with lawmakers.
House Minority Leader Rep. Charisse Millett, R-Anchorage, asked for reconsideration of the vote. Members may take up the measure again before sending it to the Senate.
Senate President Pete Kelly, R-Fairbanks, released a statement Saturday in which he stated that the income tax proposal would get a fair hearing, but underscored the Senate’s opposition to the measure.
“The Senate Majority’s solution solves the state’s fiscal problem without taxes, which begs the question: why would we impose an income tax on working Alaskans when we don’t need to? As I’ve said many times, the only thing standing between Alaskans and an income tax is the Senate.”