With a little over two weeks until Alaska’s Legislature returns to Juneau for its fourth special session, House Rep. Paul Seaton hosted a town hall in Homer Thursday. The Legislature is being called back to consider Gov. Bill Walker’s “head-tax” proposal. The measure would tax 1.5 percent of Alaskans’ income, but Seaton told Kenai Peninsula residents that he’s staying neutral on the proposal for now.
During the town hall, also hosted by Office of Management and Budget Director Pat Pitney, Seaton steered clear of saying weather he, or the bipartisan House majority coalition would support Governor Walker’s tax proposal.
Walker and his budget director are calling it a “flat tax.” The measure is estimated to bring in about $325 million, just a fraction of the roughly $2.5 billion budget deficit. Pitney said when coupled with a restructuring of the Permanent Fund, the tax would be a step in the right direction.
However, if it passed along with a draw on Permanent Fund earnings, the proposal wouldn’t completely close the gap, a detail Seaton took issue with.
The Walker administration has been trying to find a broad-based tax the Legislature can agree on. Pitney said there is a need for a broad-based revenue source, like the flat tax. She said it would tie jobs directly to the states income.
“Right now, we have what’s called the Alaska disconnect. Every new job that comes into Alaska doesn’t pay for itself. You bring a business of 700 workers into this community, you need roads, you need schools, you need police services,” Pitney explained. “The community gets some of that revenue, but the state pays for more than 80 percent of the schools. There’s nothing that comes back to the state from any job that’s created.”
Alaska is the only state without a sales, income or state property tax, but finding a solution that both bodies can agree on has been more than difficult, and time is running out. The state only has $2 billion left in its savings, which isn’t enough to fund the budget gap next fiscal year.
But, whether Walker’s latest proposal is the “middle ground” the administration has been looking for remains to be seen.
During the town hall, Seaton didn’t completely stray from criticizing the proposal. He took issue with the tax being capped at about $1,100, equivalent to an income of about $150,000 per year. Seaton said not taxing the roughly 13,000 high-income Alaskans at the same rate puts the burden on the lower and middle classes.
“So, it’s a little bit of the distributional impact that we worry about,” he said.
Seaton referred back to the House’s income tax plan several times, which would generate about $680 million. That tax was lumped into a House bill that would allow Permanent Fund earnings to fill most of the budget gap. The Senate passed a similar bill, but it opposed implementing an income tax on top of lowering dividends to pay for state government.
Pitney said that’s why the administration chose to propose the flat tax.
“The harder right folks don’t want an income tax. They don’t want any tax, but we felt like with a cap this is a good enough compromise that we could move it through,” she said.
If the tax was uncapped, it would pull in about another $10 million, but Seaton thinks the tax, as proposed, would leave additional money on the table.
“This tax is on wages and self-employment income only. So it doesn’t do capital gains. It doesn’t do investment income if you’re trading stocks and bonds, and if that’s the way you earn your income, you’re not going to be paying this tax,” he said.
Seaton and Pitney also took questions and comments from the audience. Greg Sarber was among the audience members who opposed the measure, calling it an income tax. He said the idea made him question if he should move out of state.
“I do not support an income tax, and the reason is that how it’s presented to us now sounds like it’s a very reasonable system,” he said. “What I’m concerned about is that’s how it’s sold to us today – at some point in the future when the state is going to want more money because oil revenue is going to continue to decline, that income tax will go up and up and up.”
Craig Forrest contrasted Sarber, saying that he doesn’t enjoy paying taxes, he values state services.
“I don’t see any way that we can possibly get out of the hole that we’re in if we don’t start paying for it. We have to do that,” Forrest argued. “It’s either that or we have to make a choice and we have to tell our representatives that we need to cut programs.”
Seaton wouldn’t speculate on whether he thought the measure would appease both the House and Senate and noted that he will wait for more analysis before he makes a decision.
The Legislature is set to convene in Juneau on Oct. 23. It will also consider Senate Bill 54, which would tweak 2016’s major criminal justice reform bill, SB 91.