The Legislature is trying to close the four billion dollar budget deficit this week. But a new report says the burden of closing the gap will fall too heavily on the poorest Alaskans.
If every element of Governor Bill Walker’s current fiscal plan is adopted,
low income Alaskans would lose nearly 10 percent of their income, middle-income residents would lose about 4 percent. But the top 1 percent of state residents would only see a 1.3 percent cut.
That’s according to a report by the nonpartisan Institute on Taxation and Economic Policy.
The results would be more skewed if the state doesn’t adopt an income tax. In that case, low-income residents would still lose more than 9 percent. Middle-income residents would lose 3 and a half percent. But the highest income Alaskans would lose less than a quarter of a percent.
The Rasmuson Foundation commissioned the report. Foundation President and CEO Diane Kaplan says the report gives the Legislature and the governor a chance to reflect on how their actions will affect different groups.
“We are concerned about how different approaches affect our poorest, most vulnerable citizens, as are members of the Legislature, as is the governor, and that’s why they asked us to get this information for them,” said Kaplan.
The reason why the results affect different income groups in such different ways is that low-income residents rely much more on Permanent Fund dividends. They would see their checks cut in half by a proposal released by legislative finance committees this week.
Walker also proposed a lower income tax rate than any other state in the country– 6 percent of the federal income tax liability.
The new report found that there would be a more balanced effect if the state reduced dividends by 370 dollars and set income taxes at 15 percent of residents’ federal tax liability.
Kaplan said the state needs a balanced approach.
“There are several different approaches that are reviewed in the report. We don’t endorse any one of them,” Kaplan said. “We don’t condemn any one of them. We say these are all good pieces of information for our elected officials to use as they come to a sound decision here before heading out of Juneau this year.”
Revenue Commissioner Randall Hoffbeck says Walker’s administration tried to be balanced, while setting the income tax as at a level that wouldn’t be controversial.
They ruled out a statewide property tax because there’s scant information on some Unorganized Borough land, while a sales tax would also burden low- and middle-income residents and communities that already have their own local sales tax.
“When it came right down to it, we found that the income tax was the one that really fit the governor’s overall plan the best,” said Hoffbeck. “In that the income tax is progressive. It hits the higher income taxpayers more. And that works in conjunction with a reduction in the size of the Permanent Fund dividend.”
If being uncontroversial was the goal, it’s not clear Walker succeeded. Republican legislative leaders have resisted any income tax.
Eagle River Republican Representative Dan Saddler asked Hoffbeck how Alaskans could be assured that once an income tax is introduced, the rate wouldn’t be raised.
The commissioner responded that Alaska has a history of eliminating the income tax when state revenue rose due to oil revenue. Alaska is the only state in the country without either an income tax or a statewide sales tax.
The House Finance Committee scheduled public testimony on Walker’s income tax proposal and the proposed Permanent Fund plan for Thursday evening.