My Turn: State still needs income tax

Posted: Wednesday, November 17, 2004

Once again, high oil prices - amazingly high - have disguised the critical need for a state fiscal plan. We know that high oil prices won't last. Today's reprieve may be just enough time to get our fiscal house in order.

Alaskans for Fair Taxes is a coalition of civic organizations, economists, business leaders, religious groups and concerned citizens working to educate the public about the state's fiscal situation. If we want the state to continue to pay its bills and attract investment, we must fix the fiscal gap. Our group has studied the alternatives and concluded that the fix must include a little bit of everything, including broad-based taxes.

A broad-based tax is an important part of the solution because everyone shares the burden. This is not only the fairest approach, but it is also the most economically sound. The load is lighter for each of us when we all lift together. Every industry contributes through, and in proportion to, its employment and earnings. And the state gets a stable stream of revenue that does not go up and down with oil prices. It takes two years' lead time to establish and collect broad-based taxes, so the time to act is now. If it turns out that oil prices stay high and we don't need the revenues right away, we can defer the effective date.

But which broad-based tax? Most observers agree - indicated both by the Conference of Alaskans straw vote and voter opinion polls - that an income tax is better than a sales tax. Income taxes are better for households. State income taxes are deductible from federal income taxes while state sales taxes are not; so for Alaskans as a whole, we pay less for the same amount of revenue raised. Depending on which form of income tax we adopt, about 14 percent to 18 percent of the total revenue collected by a state income tax would be deducted from federal taxes and flow back into the state's economy. State sales taxes might also become deductible under pending federal legislation, but the amount Alaskans as a whole would deduct would be less than the amount deducted with an income tax.

Most households pay less with an income tax than with a sales tax, and the more progressive the tax, the larger the majority that is better off. The myth that income taxes are unfair because not everybody pays is untrue: in Alaska, 97 percent of households have taxable income.

An income tax is best for municipalities. In Alaska, by tradition, sales taxes are a revenue source reserved for local governments. The 94 Alaska municipalities that already levy local sales taxes would be hurt by the imposition of a state sales tax.

Income taxes are better for local businesses. Sales taxes not only impose higher administrative costs, but they also increase consumer prices. More and more customers will choose to shop untaxed sources such as the Internet.

Both sales and income taxes would collect revenue from non-residents: either visitors or workers. Would you rather drive away tourists who buy our goods and services, or drive away nonresident workers who compete for our jobs?

Funding state government with permanent fund earnings alone is a very bad idea. The resulting reductions in dividends would fall on all families, but would hit low-income families the hardest. Income tax revenues combined with budget discipline, "surplus" permanent fund earnings (after dividends), and other revenue sources, however, would be acceptable. This would moderate both the level of taxation and the draw from permanent fund earnings without cutting into dividends.

We think that the fairest and most sensible way to address the state's fiscal problems is to adopt an income tax as part of a comprehensive fiscal plan. This approach also builds in more fiscal accountability as voters who pay taxes are more likely to scrutinize state spending. We invite you to educate yourself on the facts, draw your own conclusion, then join us in our effort to educate others.

• Sharman Haley and Arthur E. Curtis live in Anchorage and are co-chairs of Alaskans for Fair Taxes.

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