A year-round sales tax is not part of the budget this administration proposed to the Legislature in March. Instead, we proposed either a seasonal sales tax, charged over the summer months, or re-instatement of the old school tax, a once-a-year contribution from everyone who works in the state. Either of these proposals offer a way for visitors or out-of-state workers to pay their fair share. Both of these proposals were modest in their scope because they were coupled with significant budget reductions and increases in other user fees.
It appears that, after months of spirited discussion, a majority of legislators are opting for an annual 3 percent, flat sales tax. While not my idea, this is a solution that I am prepared to accept because the additional revenue is needed as a "bridge loan" from the public until revenues from natural resource jobs kick in. The tax can then be reduced or eliminated.
For the short term, our fiscal plan involves a combination of reduced state spending and additional revenues in order to limit the amount of money withdrawn from the Constitutional Budget Reserve. For the long term, our plan envisions growing the economy to produce new jobs and state revenue through resource development. Steps toward that goal are the exploration severance tax credit proposal, changes we have made to permit streamlining, and progress at the Pogo and Donlin Creek mines, for example.
Some people say a sales tax places an unfair burden on low-income people. That argument conveniently overlooks the state's annual Permanent Fund dividend, which would more than offset the cost of a sales tax on any average Alaskan. If the dividend is $1,000, and the sales tax is 3 percent, each person in a household would have to make more than $33,000 in purchases before the sales tax costs them anything.
Only people who are able to spend more than average would be paying an amount of sales tax that exceed what they receive in their dividend check. In this state, therefore, a sales tax need not be considered regressive.
Those who have followed the debate about income tax may recall that advocates have often cited the idea that citizens would be more interested in what government does if they paid a share of the costs. It may be true that over the last two decades, while the oil industry has picked up the lion's share of the tab, and individual residents had to contribute very little to support state services, many people didn't pay attention to state finances.
Unlike the income tax, which is paid only by people who have a certain level of income, a sales tax impacts every person who purchases commodities and services in the state. Because everyone must pay a sales tax, we look forward to the entire public to pressure their legislators for smaller government, which I certainly support.
How will the proposed sales tax impact communities that already have a local sales tax in place? HB 293 proposes reasonably long phase-in periods to protect them: including phase-ins for rates, for the differences in exemptions, and for the state to take over collections.
As an added off-set, the legislation also provides that half of the proposed 12-cent increase in motor fuel taxes would be split with local communities, approximately $19 million.
Legislators are working very hard to craft a revenue stream for the state that is fair to all Alaskans and all communities. It won't be perfect, nothing ever is. But we will have opportunities to tweak the tax as we move forward.
Keep in mind we are not here to levy huge taxes on citizens in order to fund an oversize government. To the contrary, we have already reduced the operating budget for FY 04 by $189 million. The goal is to continue to fund essential state services, while we make long overdue changes in state spending and regulatory policies. The long-range goal is to provide new generations of Alaskans the opportunity for good paying jobs and a good quality of life in this great state.