State of the State

Gov. Knowles: Tax personal income, alcohol and cruise ships

Posted: Thursday, January 17, 2002

[ Click here for the full text of the Governor's Speech ]

Carrying through on his promise to propose another long-range fiscal plan, Gov. Tony Knowles on Wednesday reaffirmed his support for a personal income tax and called for a cruise ship head tax and increased alcohol taxes.

Delivering his final State of the State address to a joint session of the Legislature, Knowles outlined $400 million in taxes that he wants to see passed into law this year as part of a suggested three-year plan to raise $1.2 billion to close the state budget gap.

"So why am I risking what little political goodwill I may have with Alaskans to propose unpopular measures now to balance our budget?" the Democratic governor said, eliciting scattered chuckles from lawmakers. "Simple. Along with hundreds of thousands of other Alaskans and all of you in this room, I care deeply about the future of this state."

Knowles, who many say has U.S. Senate ambitions, said he could leave office in December with $1.8 billion in reserve funds, more than there were when he took office in 1994. But to do so without trying to implement a long-range plan would be failure to act on "a clear threat to our future," he said. "Time is short; the stakes are high."

Leaders of the Republican majority in the Legislature, who resisted Knowles' proposal for an income tax and other revenue-raising measures in 1999, were mild in their response Wednesday and said they will consider new taxes.

But while Republicans didn't fault the governor for proposing new revenue, they said his budget plan for the next fiscal year would cost up to $300 million more, leaving a net gain of as little as $100 million through the new taxes he supports.

"He simply seems to want more spending and more taxes," said Senate Finance Co-Chairman Dave Donley of Anchorage. "Don't make the problem any worse this year."


House Finance Co-Chairman Eldon Mulder of Anchorage said the Legislature has fiscal options this year only because the majority has rejected hundreds of millions of dollars in budget increases proposed by Knowles over the past seven years.

"We have choices today because of our fiscal restraint," Mulder said.

Knowles called for $350 million in income taxes, based on a percentage of federal tax paid approximately 18 percent, according to a revenue official. The governor said it would be half of what Alaskans paid before the income tax was repealed in 1980, when oil money started flowing.

And the net amount paid by Alaskans would be $275 million, he said, because nonresident workers would pay $23 million and Alaskans could deduct $52 million in state taxes from federal filings, in effect tapping federal funds.

The governor also supported a bill by Republican Rep. Lisa Murkowski of Anchorage to raise the alcohol excise tax by a "dime a drink," estimated to generate $30 million, which he said was "small compared to the cost each year of treating the problems of alcohol abuse." The last increase in the tax was in 1983.

And Knowles called for a $30 cruise ship head tax, which would raise about $21 million, based on 700,000 passengers.

"Today, the multi-billion dollar cruise ship industry pays no corporate income tax to Alaska on its cruise ship operations, or for that matter, to the federal government or any other state in America," he said. "It's only fair that every industry contribute something to Alaska for the many benefits that they receive here."

Knowles, who proposed using permanent fund earnings in 1999, didn't recommend that this year. He said that should be the last source of new revenue to be tapped, and he said it should be preceded by a public vote.

The governor also cautioned against raising oil and gas taxes prematurely, which he said could "kill the goose that has laid the golden egg."

The speech started out with a call for increased "investments" in the education, health and safety of children, which Republicans said was fine in its own context.

"I would like to tell you that I support every provision of the governor's speech," said House Speaker Brian Porter of Anchorage. "I would like to tell you that. ... (But) the very first thing he mentioned was increased spending."

"The problem, of course, is, can we afford that many wonderful ideas?" said Senate President Rick Halford of Chugiak. "The bottom line is it just goes further than we can afford."

Knowles, anticipating continuing complaints about his spending proposals, told lawmakers that $81 million of his proposed increase is "a direct result of action you have taken in approving laws, budgets, contracts and replacing lost federal and other funding sources."

But Mulder and Donley rejected that argument, saying Knowles should have come up with spending reductions to offset the added expense of maintaining existing programs previously approved by the Legislature. Donley repeated his request that the administration use its expertise to identify areas where the budget can be cut with the least impact.

Bill McAllister can be reached at

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