Alaska governor to introduce sales tax bill amid several tax proposals to close budget gap

The Alaska Legislature has seen several proposals for statewide taxes this session, and that will apparently also include a sales tax bill from Gov. Mike Dunleavy.

There are some other tax bills filed, including a different sales tax proposal, an income tax proposal and two bills that would make changes to how oil companies are taxed. All of them are aimed at reducing budget deficits, as lawmakers try to fund state services and Permanent Fund dividends without making huge cuts.

Alaska Beacon reporter James Brooks says that, in closed door meetings with legislators Tuesday, Dunleavy said he planned to introduce a bill that would institute a 2% sales tax. But, Brooks notes, as of Wednesday, details were still scarce and any tax proposal would be tough to pass in the few weeks remaining in the session.

Listen:

James Brooks: It really seems like a stretch to think that there’ll be significant action this year. The Legislature can always surprise you. Things can move quickly when there is consensus. But the issue right now is that any tax proposal legislators, and it sounds like the governor has said as well, needs to be part of a package of multiple bills. And until I see it, I really don’t believe it.

Casey Grove: So the governor is supposedly going to introduce a sales tax bill, but that’s not the only idea for a tax in Alaska, and it’s not even the only idea for a sales tax in Alaska. There is another bill out there, right?

JB: Right. Rep. Ben Carpenter of Nikiski has proposed a 2% sales tax bill already, and that’s been discussed somewhat in the House Ways and Means Committee. That’s basically the first stop shop for any fiscal measures at this point in the House. It hasn’t advanced beyond that. We also have seen an income tax bill proposed by Rep. Alyse Galvin of Anchorage. We’ve seen a couple oil tax measures, one from Rep. Cliff Groh of Anchorage, the other from Sen. Bill Wielechowski of Anchorage. But all of those measures are still at a fairly early state in development.

One of the big things that came out of Tuesday’s meetings with the House and Senate was that the governor seems to be changing his position on new taxes. I don’t know that for sure, because I haven’t heard it directly from him, but in prior statements, during his first term in office, the governor said that any statewide broad-based tax needs to be approved in a vote of the people, a statewide referendum. In these meetings, legislators said the governor didn’t mention that idea anymore. And it seemed to them like he was saying that he’s willing to accept a tax without a statewide vote. That’s a pretty significant deal, and the governor’s willingness to examine taxes and potentially accept them is itself a big change.

CG: How would the sales tax work again? And, I guess, what is the criticism of that? I mean, I’ve heard that that it would be difficult in rural Alaska. Explain that to me.

JB: Yeah, one of the drawbacks we’ve heard in legislative committees is that because prices are higher in rural Alaska, rural Alaska would pay a disproportionate share of any statewide sales tax. So if your gallon of milk costs you $10, that 2%, the 2% of $10, is a lot more than 2% of $6 for a gallon of milk in Fairbanks or Anchorage. There’s also a concern about sales taxes in general, that lower-income, poor Alaskans will pay proportionately more of their income in sales taxes than richer Alaskans. The counter argument to that is that if you use sales tax revenue to boost the Permanent Fund Dividend, that actually benefits the poor Alaskan more than a sales tax hurts them. Because, let’s say you’ve got a $2,700 Permanent Fund Dividend, as has been proposed by the House, if you have to cut that in half, in order to balance the budget instead of passing a sales tax, then that takes away the same amount of money from everybody, whether they’re rich or poor. And that $1,300, $1,350, that you’ve taken away from a poor Alaskan is going to be a greater percentage of their income than that same $1,350 taken from a rich Alaskan. So there’s definitely trade offs in this policy debate that’s going on.

CG: Definitely trade offs, and definitely a debate.

JB: Very much. And we’re in this position, because it hasn’t been resolved since 2016, when Gov. Bill Walker vetoed half the dividend as a cost cutting measure.

CG: Right. And, I mean, people have speculated, too, that even if it’s difficult to pass any kind of a tax bill this year, it may be more difficult the next time around, because that’s coming up on a campaign season, and any idea of a tax seems like it might be unpopular to some people.

JB: Yeah, you’re absolutely right. And in addition, there’s always the chance that legislators can simply roll the dice and hope for higher oil prices. Back in the spring, the state Department of Revenue estimated oil prices at in the $70s per barrel for the next 12 months or so. Right now prices are higher than that, and legislators could simply look at current prices and say, “Well, we’re going to gamble that those prices are going to remain where they are. We’ll pay for whatever deficit there is from savings and see where we end up next year and then pick the ball up next year.”