Senate kills income tax

The Alaska Senate on Friday voted 15-4 to kill an income tax proposed by the House, all but ensuring the Alaska’s multibillion-dollar deficit will not be solved this year.

Most of those in opposition said they refuse to raise taxes on Alaskans during a recession.

“The Senate enthusiastically ended discussion, at least for this year, on the idea of penalizing them for having a job,” Senate President Pete Kelly, R-Fairbanks, said after the vote. “It’s not good for the economy, it’s not good for Alaska, it’s not good for our future. Most of all, it’s not needed.”

Another senator, Sen. Shelley Hughes, R-Palmer, compared the state government’s spending habits to an opioid addict.

“You know how it works with an addiction: When someone has an addiction, they spend every waking moment, every cent, trying to feed that addiction,” she said on the floor.

The income tax proposal was a critical part of the coalition House Majority’s plan to erase Alaska’s $2.7 billion annual deficit. The House had previously approved the income tax bill, House Bill 115, then sent it to the Senate for a vote.

The Alaska Department of Revenue has estimated that if fully implemented, HB 115 would have generated $687 million per year for state services. In addition to spending from the Alaska Permanent Fund’s investment earnings, cuts to the state subsidy of oil and gas drilling, and modest budget cuts, the House’s plan would have balanced the state budget by 2020.

That will no longer happen.

“Clearly, it’s a setback,” said Speaker of the House Bryce Edgmon, D-Dillingham, after the Senate vote.

Edgmon said it is possible that the Senate and House could agree on other ways to raise revenue, but “the devil’s in the details, and I’m not going to stand here and tell you what other options may be out there,” he told reporters Friday.

Based on the limited public polling available, the income tax appears to remain an unpopular idea across the state. According to a late February poll conducted by the Alaska Chamber of Commerce, only in Southeast do a majority of residents support the concept. Support in rural Alaska was within the margin of error.

On Friday, 13 Republicans and two Democrats voted against the tax. Four Democrats voted for it. Sen. Bert Stedman, R-Sitka, was excused absent.

Sen. Hughes call the idea of an income tax “an attempt by the government, which is sadly addicted to spending, to grab money from others to feed that addiction.”

“I actually think it would be an insane action,” she said of a ‘yes’ vote.

Four Senate Democrats did cast ‘yes’ votes.

One of those Democrats, Sen. Tom Begich, D-Anchorage, responded to Hughes’ comment by saying that the true definition of insanity is repeating the same actions and expecting a different result.

Since 2012, the Alaska Legislature has cut the state’s budget 44 percent. An increasing number of legislators and executive branch officials say they believe government is “right-sized” and that further cuts will be difficult.

Last year, the Alaska Senate passed a bill to cut the Permanent Fund Dividend and use a portion of the fund’s investment earnings on government expenses. The House rejected that idea, saying it needed additional elements to balance the effects of a reduced dividend. The Senate again passed a bill this year to cut the dividend and use investment earnings for expenses. The House had suggested the income tax would be a way to ensure rich Alaskans share the burden with poorer Alaskans, who suffer disproportionate effects under a dividend cut.

The tax rejected by the Senate on Friday would have been a progressive one, rising as a person earned more money. A single Alaskan earning $50,000 per year would have paid $992.50. That same Alaskan, earning $200,000 per year, would have paid $7,992.50.

A couple with two children, earning $50,000 per year, would have paid $210. The same couple earning $200,000 would have paid $5,145.

All figures are from the income tax calculator created by the Alaska Senate Majority.

Sixteen percent of the tax’s revenue would have come from nonresidents, according to the Department of Revenue. More than 44 percent of the tax’s revenue would have been paid by individuals and couples earning $200,000 or more per year, according to Ken Alper, director of the department’s tax division. Only 25,712 Alaskans ─ about 3 and a half percent of the state’s population ─ earn that much, according to the Department of Revenue.

Gov. Bill Walker has repeatedly said he supports a comprehensive fix for the deficit, regardless of its form.

“I’m disappointed with the Senate’s vote this afternoon, but we’ll continue working with both bodies to fix Alaska’s fiscal crisis,” he said in a prepared statement released after the vote.

In the House, members of the Republican minority watched the vote from the Senate gallery and acclaimed the final tally, calling it the best vote of the year.

Among members of the House majority, the reaction was different.

“Of all the options available to us, the do-nothing plan is the worst,” said Rep. Justin Parish, D-Juneau.

“Actually, this isn’t the do-nothing plan,” he added after a moment. “It’s the spend-and-pray plan.”

The Legislature’s constitutional end is Wednesday, and with no end in sight to the debate over the deficit and budget, Edgmon said an extension is “inevitable.”

HOW THEY VOTED

YES

• Sen. Tom Begich, D-Anchorage

• Sen. Dennis Egan, D-Juneau

• Sen. Berta Gardner, D-Anchorage

• Sen. Donny Olson, D-Nome

• Sen. Click Bishop, R-Fairbanks

• Sen. John Coghill, R-North Pole

• Sen. Mia Costello, R-Anchorage

• Sen. Mike Dunleavy, R-Wasilla

• Sen. Cathy Giessel, R-Anchorage

• Sen. Lyman Hoffman, D-Nome