Hudson: Tax half of permafund dividend

New bill adds to state's revenue options

Posted: Wednesday, February 20, 2002

Rep. Bill Hudson is stirring up an already active revenue pot with a new proposal to tax half of permanent fund dividends.

Hudson, a Juneau Republican who was the driving force behind the formation of the bipartisan Fiscal Policy Caucus, introduced the bill Tuesday as a way of getting all options for new state revenue on the table.

"It's a proposal that has not been brought forward," he said today. "We need to look at everything."

Hudson already had a bill in to take 5 percent of the permanent fund's average market value and split it 50-50 between dividends and government operations.

He said the bottom line is similar: If either mechanism were in place now, the dividend program would drop from just over $1 billion last year to $600 million, and the state would get a $600 million infusion of cash at a time when the fiscal gap is about $900 million. Both revenue streams would be expected to grow thereafter, he said.

But Hudson said the difference in the new approach is that the dividend taxes could be deducted from federal income tax filings, potentially recouping $30 million of the lost dividend money for Alaska residents.

That makes it possibly a better method than simply reducing the amount available for dividends or capping them at $1,250, as the Fiscal Policy Caucus has recommended. Last year's dividend was $1,850, although that's expected to drop by about $200 this fall.

Hudson, a former commissioner in the administration of Gov. Jay Hammond, said he decided on the new bill after talking with Hammond recently.

Hammond, who opinion polls have shown to be the most trusted Alaskan on fiscal matters, made the point that taxing permanent fund dividends wouldn't require a vote of the people at the general election in November, whereas Gov. Tony Knowles repeatedly has pledged a public vote for any change in the dividend calculation. Those pushing for a long-range plan say some steps to raise revenue must be taken in this legislative session if the state is to avert an actual $1 billion-plus shortfall in 2004.

Hudson said his goals include continuing the dividend program, which he believes is doomed without a long-range plan; maintaining at least $1 billion in the Constitutional Budget Reserve as a true "rainy day" fund, rather than as the constant source of deficit-plugging revenue that it has become; and having the minimum impact on working Alaskans.

"The status quo misses quite a few of those," he said.

But Hudson also wants the $600 million in state revenue to serve as a source of increased education funding when warranted. The state can't dedicate funds constitutionally, but he said he wants people to think of the money in those terms. He didn't say how much of the new revenue should be counted toward closing the fiscal gap and how much should be perceived as an investment in education.

Hudson's bill and other legislation proposing to change dividends or use permanent fund earnings will be the subject of a public hearing at 10 a.m. Saturday in the Capitol. The House State Affairs Committee is working on a revenue package that could go to the House floor in March, although prospects appear to be much dimmer in the Senate.

Bill McAllister can be reached at

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