Cities to push income tax

Tax would affect non-Alaskans more than other options

Posted: Friday, July 25, 2003

Despite repeated statements by Gov. Frank Murkowski that he will not institute a state income tax, Alaska cities are planning to push for it as part of a long-range fiscal plan next year in the Legislature.

Earlier this week, the Alaska Municipal League and the Alaska Conference of Mayors met in Girdwood for a three-day conference to discuss the fiscal future of the state and the affects of sharp budget cuts. The Alaska Municipal League represents more than 100 Alaska cities and boroughs.

Kevin Ritchie, executive director for the Alaska Municipal League, said the conference explored topics such as income taxes, sales taxes, reinstating municipal revenue sharing and a variety of smaller taxes such as the gasoline tax and cruise-ship head tax.

But there was overwhelming support for an income tax, largely because as much of a quarter of the tax would be paid by someone other than Alaskans, Ritchie said.

"With a sales tax, far more of that would be paid by Alaskans than if there was a state income tax because of the federal IRS deduction and the out-of-state workers," Ritchie said.

The group also discussed establishing municipal fiscal notes for bills in the Legislature to establish the financial impact of legislation to cities and using a portion of the earnings of the Alaska Permanent Fund to help pay for municipal government.

About 125 Municipal League members and community leaders from across the state attended the conference.

The Municipal League opposed the statewide sales tax that died in the Legislature last session, but the organization made little effort to push for an income tax.

Alaska eliminated the state income tax in 1980, when the state was awash in money from North Slope oil.

A decline in oil reserves, though, in the late 1980s and through the 1990s, led to budget cuts and a search for new revenues. Following the 2003 Legislative session, Murkowski cut $138 million from the state budget, after the Legislature failed to pass a 3 percent statewide sales tax he supported.

Those cuts included $22 million in municipal revenue sharing and Safe Communities. That program helps fund police, public safety, fire protection, emergency medical services, water and sewer services not offset by user fees, solid waste management and other services.

The cuts also slashed $15 million in community matching grants for public works projects.

At the conference in Girdwood, Ritchie said the group identified the state income tax as a top priority next year.

Ritchie said he is unsure if Murkowski will budge on the income tax issue. However, he noted, "The purpose of government is to help people make choices. I think there was a lot of discussion on communities actively taking part in laying out the options, because this is not just a state issue."

He said the Municipal League will work with other organizations to educate the state on the pros and cons of an income tax as compared to a sales tax.

Murkowski spokesman John Manly said the governor has made it clear that he does not and will not support an income tax on philosophical grounds.

"You are taking away money that one person earned to provide services that another person thinks they need," Manly said, noting that Murkowski likely would veto an income tax bill if one passed the Legislature.

"It's an old debate that centers around class warfare," Manly said. "They think rich people shouldn't be able to get rich. ... If they think that's progressive, I guess I don't."

Jim Powell, a Juneau Assembly member who attended the meeting in Girdwood, said Juneau supports an income tax because of the federal deductions and out-of-state employees that would reduce the impact of such a tax.

"If the saying is the best tax is the one that somebody else pays, then this is the best tax," Powell said.

Scott Goldsmith, a University of Alaska Anchorage economics professor, told conference attendees that the state would capture about 7 to 10 percent of the total amount of a sales tax from those living outside of the state, mainly from tourists and independent travelers.

About 22 to 25 percent of an income tax, however, would be paid by non-Alaskans. About 8 percent would be paid by seasonal workers, and the rest would be paid by the federal government through tax deductions, Goldsmith said.

"That still begs the question: Why should we tax ourselves 75 percent of this tax," Manly said.

Goldsmith also noted that implementing the income tax would be easier because of varying local sales tax exemptions that would have to be reconciled with a statewide sales tax.

"It puts more of a burden on the private sector," Goldsmith said.

Powell said the Municipal League will work to get the message out through organizations such as the Alaska State Chamber of Commerce, rotary clubs and other community organizations.

He said another strategy is to develop a legislative report card on how lawmakers vote on taxation bills.

• Timothy Inklebarger can be reached at

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