Top Republican, Democrat in Alaska Senate differ on income tax

Sen. Pete Kelly, R-Fairbanks, during a Senate Judiciary Committee meeting in March 2017. Kelly is hopeful that the Legislature will agree to a draw from the Alaska Permanent Fund without a broad-based tax. (Photo by Skip Gray/360 North)

Alaska Senate Republican leaders are pointing to rising oil prices as confirmation that their reticence to a proposed income tax was right. The chamber’s leading Democrat says relying on oil gains would be shortsighted.

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Fairbanks Republican Senate President Pete Kelly said his caucus was right to oppose an income tax last year.

“The people who were so motivated to put a tax in did it in an environment of $26 per barrel oil,” Kelly said. “Frankly, it’s hard to blame them for reacting the way they did. I’m glad that the Senate held back and was a little more disciplined on that, because we would now be pulling hundreds of millions of dollars from an economy that’s trying to recover.”

The price for North Slope oil was $69 per barrel on Tuesday.

Kelly expects the Senate majority to oppose Gov. Bill Walker’s proposal for a 1-and-a-half-percent tax on income from employment, to pay for maintenance that’s been deferred for state facilities.

Anchorage Democratic Sen. Berta Gardner, the minority caucus leader, said a broad-based tax is still needed.

“I hope that Alaskans are getting very angry about failure to take the necessary steps to pull ourselves out of this recession and this trouble,” she said.

Gardner said the future of Alaska Permanent Fund dividends is in jeopardy if the state doesn’t have a broad-based tax like an income tax.

It’s a position that Kelly completely rejects.

He said putting downward pressure on the budget and drawing from permanent fund earnings will stabilize the budget.

“I’m hopeful,” Kelly said. “The economy is doing much better. And we’ve had a lot of discussion about the different plans: The Senate plan, I think we’re finally gaining acceptance of it by some of the people in the administration and even some of the people over in the House Democrats’ side.”

The Senate plan would draw roughly 5 percent of the value of the permanent fund annually from fund earnings.

The plan House passed last year is similar, but also includes a tax that would close the budget gap.

Kelly said adopting the Senate plan would help the state.

“I think it’s going to be proven over time that we don’t need that broad-based tax, that the economy is recovering, oil prices are recovering, production is recovering, and we can go to the earnings reserve to pay a dividend and to pay a portion of the government,” he said. “I think that we have the facts on our side and I would hope that they’d be convinced by them at the end of session.”

While Gardner said she’d support a income tax that requires those with higher incomes to pay more, she doesn’t back Walker’s employment tax, which would limit payments to twice the amount of the PFD.

“I appreciate his effort to try to craft something to try to bring the Senate to the table,” she said. “I don’t think that this is going to fly.”

Gardner said the idea of exploring for oil in the Arctic National Wildlife Refuge won’t answer the budget problem.

“Alaskans need to understand that this is not going to be the perfect solution for us,” she said. “We’ve got a couple of decades, if then, before there’s any revenue to the state and most of this is not on state land, so we’re not going to get much.”

Walker transmitted his budget bills Wednesday to the Legislature.

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Andrew Kitchenman is the state government and politics reporter for Alaska Public Media and KTOO in Juneau. Reach him at akitchenman@alaskapublic.org.