Alaska

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CORRECTED-Alaska's House revamps taxes, Permanent Fund

In ANCHORAGE, Alaska, story headlined "Alaska's House revamps taxes, Permanent Fund" please read in the sixth paragraph...0.02 percent...instead of 0.2 percent...(corrects the low tax rate to 0.02 from 0.2 percent.)
 

A corrected version follows.

By Yereth Rosen

ANCHORAGE, Alaska, May 2 (Reuters) - Alaska's status as a tax haven took a blow on Thursday when the state House of Representatives approved a personal income tax, reversing action that abolished the tax 22 years ago.

The Republican-controlled House in the southeastern state capital of Juneau also approved government access to the investment earnings of the Alaska Permanent Fund, a $25 billion state-owned endowment that pays annual dividends to residents and has never been used for government operations.

And the House approved an increase in the state's alcohol tax, which has not changed since 1983.

All three bills were considered part of a package to help fill a budget shortfall expected to mount to $1 billion annually, starting in the next fiscal year.

Alaska depends on oil revenues for about three-quarters of its general government funds, but production from the North Slope, where the giant Prudhoe Bay field is ageing, is now down to about half the peak level of two million barrels a day achieved in 1988.

The personal income tax rate would range from a low of 0.02 percent (corrects) of adjusted growth income to a high of 2.19 percent.

The income tax bill, which would generate about $255 million a year by 2004, was "clearly a milestone," its author said during floor debate.

"It's conceptually a hybrid that combines the best factors of a sales tax with those of an income tax," said Fairbanks Democrat John Davies, adding it was a compromise.

The income tax and other revenue bills were the product of about three weeks of negotiations between lawmakers and Democratic Gov. Tony Knowles.

Dissenters said the income tax would hurt Alaska's economy, already "on the verge of spiralling downhill," according to one lawmaker.

"It's axiomatic - you don't tax people when their economy is going downhill," said state Rep. Norm Rokeberg, an Anchorage Republican.

The income tax faces an uncertain fate in the Republican-controlled state Senate, where President Rick Halford termed it an "oddball" measure.

Still, Thursday's House vote was something of a watershed for a state that abolished its personal income tax in 1980, when oil money was new, and has no statewide sales tax, one political expert said.

"It breaks the ice and it sets a precedent," said Marc Hellenthal, an Anchorage pollster and political consultant.

The lawmakers' action makes it more likely that some broad-based tax will be imposed soon on Alaskans, Hellenthal said. "It's easier to do it again than to do it the first time," he said.

Passage of the bill that would tap the Alaska Permanent Fund was also precedent-setting. The bill would funnel about $630 million a year by 2004 to education and capital projects, according to legislative staffers.

The Permanent Fund - considered nearly sacrosanct by some residents - pays annual dividends to nearly every Alaska man, woman and child. Last year's dividend was $1,850. But the time has come to put the fund to other uses, said the bill's sponsor, Rep. Bill Hudson, a Juneau Republican.

"I think that we have crafted a fair and balanced approach to filling the fiscal gap," he said.

The alcohol-tax bill would hike that levy to the equivalent of 10 cents a drink from the current rate of about 3.3 cents on beer and wine and 4.4 cents on distilled spirits.

The bill sponsor, Rep. Lisa Murkowski, said it would help the state offset the "staggering" public costs of alcohol abuse. But the Anchorage Republican conceded it would not solve all the state's alcohol-related problems.

"This is not a prohibitionist bill. I'm not Carrie Nation. I go into this with my eyes open," Murkowski said. "We are not going to see the consumption of alcohol drop dramatically just because we increased the tax."