Hudson foresees vote on long-range plan

Legislative committees weighing income, sales, alcohol and employment taxes

Posted: Thursday, February 14, 2002

State Rep. Bill Hudson of Juneau said today that he is more optimistic now about the Legislature approving a long-range fiscal plan than he has been in the six years he has been pushing for one.

After the House State Affairs Committee discussed his bill for reinstating the personal income tax, Hudson, the father of the bipartisan Fiscal Policy Caucus, envisioned a mid-March vote in the full House on a package probably including use of some earnings of the Alaska Permanent Fund and an increase in the alcohol excise tax.

"I believe that it is coming together," the seven-term Republican said in an interview this morning. "We now have at least a tacit commitment on the part of the House leadership to try to put the elements of a relatively complete package together by the middle of March. ... No. 1 will be an income tax of some sort."

Hudson also will be advancing a bill to tap permanent fund earnings for about $600 million. That would reduce the dividend payout, from about $1 billion to $600 million, while maintaining inflation-proofing of fund principal, he said.

With $600 million a year from permanent fund earnings, $285 million from his income tax of 2.25 percent on adjusted gross income, and about $15 million from a nickel-a-drink increase in the alcohol excise tax, the likely package is equivalent to the $900 million budget gap the state faces in the current fiscal year, Hudson said. "I do expect to see that."

The new revenue would extend the state's key reserve fund for a few years while additional measures, such as tight budget constraints and a cruise ship head tax or state bed tax surcharge, help improve the fiscal outlook, he said.

Although a constitutional amendment to cap state spending is moving through the House, following Senate passage of a different version last year, there is widespread acknowledgment that revenues must be raised to avert a $1 billion shortfall in 2004, Hudson said.

The author of the spending cap, Republican Sen. Dave Donley of Anchorage, said this week that there is no way to know when the Constitutional Budget Reserve, which has been used to balance the state budget for most of the past decade, finally will be exhausted.

"Donley, in my opinion, is not reflecting what I think is the common knowledge of almost everybody else up here," Hudson said.

He said there is merit to a constitutional amendment proposed by Anchorage Democratic Rep. Eric Croft that would cap either income taxes or state sales taxes at 5 percent.

"You can limit how much taxes people have to pay, yet you can grow your way out of a problem" as economic activity generates more state revenue, Croft said, contrasting his amendment with Donley's.

But Donley's spending cap probably has to be passed by the House to gain traction with the more conservative Senate, Hudson said.

Even in the House, the move toward taxation is creating heartburn.

State Affairs Chairman John Coghill, a North Pole Republican, called the pending redistribution of income "very painful" to contemplate.

Nevertheless, Coghill said he will have a hearing on the income tax proposal by Gov. Tony Knowles next week, and will have the committee work up a revenue package of some sort. Also pending in the committee is a 6 percent seasonal sales tax proposed by Fairbanks Republican Rep. Jim Whitaker, and a smaller, different income-tax proposal by Rep. Carl Moses, an Unalaska Democrat, who would give a property-tax credit through income-tax filings.

"This is a drama in motion," said House Finance Co-Chairman Eldon Mulder of Anchorage.

Meanwhile, the House Labor and Commerce Committee on Wednesday became the first legislative panel to pass a proposed tax.

The committee voted 4-1 in favor of a $100 tax on employment, which would be collected by employers from the first two paychecks of each employee. It is estimated to raise about $38 million.

Bill McAllister can be reached at

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