Most Alaska lawmakers have focused on cutting the budget during the first three weeks of the legislative session.
But Anchorage Democratic Rep. Les Gara wants to make sure such cuts don’t fall too heavily on working-class and low-income people.
Gara has instead proposed a bill that would apply a 6 percent tax on the owners of businesses that aren’t currently taxed by the state.
These businesses are called S-corporations, named after a section of the federal tax code. Their owners report the business income as personal income.
“Most corporations in the state pay no tax whatsoever,” Gara said. “They pay a $100 license fee, even if they make $10 million a year in profits. That doesn’t make sense.”
Gov. Bill Walker’s proposed budget would affect these business owners. That’s because they would be required to pay a personal income tax of between 1 and 2 percent.
Gara said the rate isn’t high enough.
“That doesn’t work,” he said, noting that the corporate tax is 9.4 percent. “Two percent is almost nothing for a corporation that makes over $200,000 a year, or over a $1 million a year or over $5 million a year.”
House Speaker Mike Chenault, a Nikiski Republican, agreed the Legislature could consider taxing S-corporations, along with other ideas to close the $3.5 billion budget shortfall.
But he added that the burden of state taxation has rested on certain businesses – especially the oil industry – for more than 35 years.
Anchorage Republican Rep. Lance Pruitt said most legislators want to focus their efforts on finding savings in government spending. Finance subcommittees have been analyzing each section of the budget.
“That’s the difference in philosophy,” Pruitt said. “I think Rep. Gara believes we can tax our way out of this, and we can’t tax our way out of this. That’s why it’s so important, the job that the subcommittees are doing right now.”
Gara said even if his particular bill isn’t enacted, he hopes the idea of taxing S-corporations becomes a part of the budget, even if it’s sponsored by a different legislator.