Senate rejects income tax

Long-range fiscal plan deemed dead

Posted: Thursday, May 16, 2002

The Republican-led Senate rejected an income tax Wednesday by a vote of 18-2, putting the last nail in the coffin of a long-range fiscal plan.

All Republicans except Alan Austerman of Kodiak voted against the tax, primarily because they don't believe the public is ready for major new revenue measures.

Senate Finance Co-Chairman Dave Donley, an Anchorage Republican, said that imposing new taxes makes no sense before structural reforms in government, including a tighter constitutional cap on spending, which still awaits action in the House as of this morning.

The proposed new $255 million in annual tax revenue would be distributed in an unfair way under current budgetary practices, Donley said. He complained about unorganized areas of the state "freeloading" at the expense of urban Alaskans, who support local services with property taxes, and he also continued his regular attacks on the North Slope Borough, which he contends siphons off too much oil and gas revenue at state expense.

Republicans also complained about the regressive nature of the income tax, which would apply its highest rates - more than 2 percent - on the adjusted gross income of the middle class, while the wealthiest Alaskans would pay less than 1 percent.

"This plan was designed by a Democrat," emphasized Sen. Pete Kelly, a Fairbanks Republican, referring to Rep. John Davies of Fairbanks.

Senate Minority Leader Johnny Ellis, an Anchorage Democrat, said he couldn't support a regressive income tax, either, but said it was designed the way it was to attract enough votes to win House passage. Of House Republicans willing to consider new revenue, far more supported a sales tax because they said they didn't believe the state should "punish success." The Davies "Alaska Fair Tax" was designed to mirror a 3 percent sales tax.

"It was not the proposal Democrats ever would have preferred," Ellis said.

Among Senate Democrats, only Lyman Hoffman of Bethel voted for it.

The vote was similar to a 19-0 defeat of a differently structured income tax proposed by Democratic Gov. Tony Knowles in 1999.

Ellis contended that Republicans never got serious about dealing with the $1 billion fiscal gap. He said Republicans laughed and hummed the Darth Vader theme from "Star Wars" during a previous Senate floor session in which the bill was moved forward to its third and final reading.

Along with the defeat of the income tax, bills to use about $657 million in permanent fund earnings have not been moved to the Senate floor. With an extension of the legislative session approved by lawmakers Tuesday, the session now must conclude at midnight today.

Knowles, who last week enlisted business leaders to increase pressure on the Senate, acknowledged Wednesday that the fiscal plan isn't part of the negotiations on concluding the session.

House Minority Leader Ethan Berkowitz of Anchorage said that in the Legislature there are donkeys, elephants and, in the Senate Republican caucus, ostriches.

"They're very good at doing nothing, so they keep on doing nothing," Berkowitz said.

Rep. Bill Hudson, the Juneau Republican who founded the bipartisan Fiscal Policy Caucus, said the stage has been set for the next governor and Legislature to move forward with a long-range fiscal plan.

"We've drawn the blueprint now. I mean, there aren't many other options, and if there are, nobody has come forward with them yet," Hudson said. "It's just a matter of the next governor grabbing hold of that and hopefully making that his or her highest priority."

Hudson, who announced Tuesday his impending political retirement, said he had hoped for more in the Senate after the House passed four new revenue bills.

"I couldn't hardly see how our friends on the other side, the Senate, could just simply sit on it. It was a little bit like they were petrified, or immobilized, or whatever. And I know why. They don't want to have anybody to have access to a vote they might have cast in favor of an income tax, for example."

The only new revenue measure to come out of the 22nd Legislature so far is a $20 million increase in the alcohol excise tax.

Bill McAllister can be reached at

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