Senators gave the tax a cool reception Tuesday to a bill that would reintroduce a state income tax to Alaska.
Anchorage Republican Sen. Kevin Meyer said his constituents oppose creating a new bureaucracy to collect an income tax when the Permanent Fund continues to pay dividends.
“I think that’s the hardest for people to accept,” Meyer said. “It’s just the inefficiencies of giving money to people and then taking it back via the income tax.”
The House passed the income tax on April 15. The House would require the income tax and an oil and gas tax increase if the state lowers Permanent Fund dividends and draws from Permanent Fund earnings to pay for state government.
The Alaska Constitution bars the Legislature from dedicating money for future spending, but House members say the tax should be designated to fund schools.
It’s expected the income tax would raise about a quarter of the money needed to close the nearly $2.6 billion gap between what the state spends and what it raises in taxes, fees, and oil royalties.
State Tax Division chief Ken Alper said it’s important to bring the state budget into balance. Alper said if a there’s a gap in the budget like the Senate majority has proposed, then the state risks making unplanned draws from Permanent Fund earnings.
“That’s where the biggest danger lies, because we have a Permanent Fund with very strict rules around it,” Alper said. “Everyone knows what those rules are: We pay dividends. We generally do inflation-proofing. We fund it’s internal operations. And that’s it. If we’re going to change the way we manage the Permanent Fund, that is a generationally significant decision for Alaskans.”
A single person with no children and $40,000 in income would pay $617 in taxes. A married couple with two children and 100,000 in income would pay $1,483.
Another difference between the House and Senate plans is that Senate would set Permanent Fund dividends at $1,000, while the House would set them at $1,250.
Most Alaskans would pay less in income tax than they’d lose in the difference between the Senate and the House plans. For example, a couple with two children and $80,000 in income would pay just under $1,000 in income tax. That couple would lose a full $1,000 more under the Senate plan than under the House plan.
The Senate Labor and Commerce Committee was scheduled to begin hearing public testimony at 6 p.m. Tuesday.
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