Lawmakers try new combos to fix budget

Posted: Friday, April 12, 2002

The state's $1 billion fiscal gap isn't gone. Nor is it forgotten.

Various meetings and exchanges, all out of public view, have gone on throughout the week in an attempt to move a revenue package out of the House.

"My goal is to have something on the floor next week," Rep. Jim Whitaker, a Fairbanks Republican, said in an interview this morning.

Whitaker's bill for a 3 percent sales tax was pulled from the House floor March 27, after the defeat of an amendment that would have substituted a 2.6 percent income tax. Either tax would have raised about $240 million.

Minority Democrats have championed the income tax as a fairer way to raise new revenue, while most Republicans have opposed it. Neither proposal had the 21 votes needed for passage.

The deadlock has held up other revenue-raising measures, including use of permanent fund earnings.

Democrats have insisted that the issue of taxes be settled first, so that they know how "regressive" the package is before they have to vote on the permanent fund. "Regressive" refers to greater impacts on low- and middle-income households. The proposed use of permanent fund earnings would reduce dividends, having a disproportionate effect on lower incomes.

The pieces of a package still need to be assembled, but there is movement, Whitaker said. "I think it's fair to say the majority has made a commitment to put a proposal forward for the minority to review, subject to negotiation with the minority. ... I think we can still expect there to be a floor fight."

The latest Republican trial balloon is for a 1.5-percent sales tax to be

accompanied by a variety of other taxes, possibly including a 5-cent hike on motor fuels, an alcohol excise tax increase of 5 to 25 cents a drink and a $100 employment tax, sometimes also known as the school tax.

"The good news is, I think, everything is still in play," said Rep. Beth Kerttula, a Juneau Democrat who is on the minority's negotiating team.

But Republicans have sent out mixed messages, Kerttula said. "They're still in indecision mode. ... We had so many convoluted messages, it got weird."

Whitaker said the odds remain against an income tax.

But Rep. John Davies, a Fairbanks Democrat, added another wrinkle this morning.

As a fallback position, Davies has started calculating how Whitaker's proposed sales tax could be converted to an income tax that's almost equally regressive, nullifying the argument that an income tax would "punish success." That would be done by calculating how much taxpayers in each bracket would spend on a 3 percent sales tax in a year and then applying that dollar amount to their annual income.

Davies said he'd tweak incomes up to $20,000 to reduce regressivity. Those taxpayers would pay from 1.45 to 1.74 percent on their adjusted gross income, according to his spreadsheet. At $50,000, the average rate would be 2.08, and at $1 million, it would be 0.34 percent.

The benefit to doing that, Davies said, is that it avoids creating problems for municipalities that have sales taxes. Also, with an income tax, Alaskans would pay only about 75 percent of the total because it would hit nonresident workers and would be deductible on federal income tax filings.

Bill McAllister can be reached at billm@juneauempire.com.



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