Legislature(2001 - 2002)

2002-02-13 House Journal

Full Journal pdf

2002-02-13                     House Journal                      Page 2236
HB 413                                                                                            
HOUSE BILL NO. 413 by the House Rules Committee by request of                                       
the Governor, entitled:                                                                             
     "An Act relating to the imposition of an income tax on                                         
     individuals, estates, and trusts; relating to the administration of                            
     revenue laws; relating to the Alaska Net Income Tax Act; and                                   
     providing for an effective date."                                                              
was read the first time and referred to the State Affairs and Finance                               
The following fiscal note(s) apply:                                                                 
1.  Fiscal, Dept. of Revenue                                                                        
The Governor's transmittal letter dated February 11, 2002, appears                                  
"Dear Speaker Porter:                                                                               
Alaska's economy is strong -- with our 14th consecutive year of                                     
economic growth, more Alaskans working than ever before, and the                                    
lowest unemployment rates in a generation.  And yet, the economic                                   
health and security of Alaska families is threatened by the growing                                 
budget gap, which is projected to reach about $1.2 billion by next                                  
For 20 years, Alaska governors, legislators, economists, and business                               
and civic leaders have urged long-range budget plans recommending                                   
the same basic combination of cuts and revenues to replace dwindling                                
oil dollars.  Now the day of reckoning is upon us.                                                  

2002-02-13                     House Journal                      Page 2237
The approach I have proposed, which calls for raising approximately                                 
$400 million in new revenues a year over the coming three years, is                                 
based on five principles:                                                                           
     · Any plan must be fair.  Everyone should contribute, including                                
         those who make money here but live elsewhere.                                              
     · Permanent Fund earnings, after inflation-proofing and                                        
         dividends and a vote of the people, should be used only after a                            
         broad-based tax and corporate taxes are in place.                                          
     · New revenues should be phased in rather than imposed all at                                  
         once. This avoids shocking the economy and helps families                                  
         and businesses adjust to the change.                                                       
     · Any budget plan must be realistic - not based on                                             
         unsubstantiated estimates or bogus promises.                                               
     · Efficiencies, savings and continued cost reductions must                                     
         always be part of budget considerations.                                                   
This bill I am transmitting today proposes one of the new revenue                                   
measures -- a tax on income earned in Alaska.                                                       
The State of Alaska relied on personal income taxes from the time of                                
statehood until 1980.  The income tax was then repealed because the                                 
tax and royalty income from North Slope oil fields provided sufficient                              
revenue to operate state government.                                                                
The income tax I propose is a simple measure based on a percentage                                  
of the income tax paid to the federal government.  For most Alaskans,                               
this will mean an easy calculation to determine their Alaska tax.  It                               
also adopts the progressive measures and incentives of the federal tax                              
The target is for this tax to raise about $350 million, which would                                 
require a tax rate of 20 percent of an individual's income tax currently                            
paid to the federal government.  This level of income tax combined                                  
with other taxes I support would result in $400 million in additional                               
annual revenue for the state.  If the state adopts new revenue measures                             

2002-02-13                     House Journal                      Page 2238
averaging $400 million per year for three years, we will reach the goal                             
of $1.2 billion in new annual revenue.                                                              
An important feature of this bill is a provision to reduce the tax rate                             
when reserves are sufficient.  The bill includes a trigger to lower the                             
tax rate to 10 percent when the state's reserves in the Constitutional                              
Budget Reserve Fund climb above $2 billion and a further reduction to                               
5 percent when the fund reaches $2.5 billion.  Any excess general fund                              
income from a major development, such as a natural gas pipeline or                                  
the implementation of responsible revenue measures, will increase the                               
balance in the budget reserve fund.  The state should maintain at least                             
$1.5 billion in the reserve to avoid an emergency caused by a sudden                                
drop in oil and gas prices.  Once reserves reach $2 billion, however,                               
we could lower the tax rate on our citizens.                                                        
I urge your prompt and favorable consideration of this legislation.                                 
                                Tony Knowles