Facing the tax facts.

AuthorWoodring, Jeannie
PositionNew taxes as a revenue alternative for Alaska - Part 1

The first article in Alaska Business Monthly's continuing series on Alaska's changing economy looks at new taxes as a revenue alternative.

From a tax perspective, Alaska is heaven compared to the rest of the country.

Statistics reveal that, when ranked with other states, Alaskans pay low taxes. No state residents, for example, pay income tax. Anchorage and Fairbanks, with two-thirds of the state's population, pay no sales tax. Even property taxes paid by Alaskans are moderate when compared with other parts of the nation.

According to "Tax Rates and Tax Burdens in the District of Columbia: A Nationwide Comparison," an annual report comparing the tax rate of the District of Columbia with 50 cities in 50 states, "At the $25,000 income level (for 1992), the $5,853 (tax) burden for Newark, New Jersey, is six times greater than the $922 (tax) burden for Anchorage, Alaska. Similarly, at the $100,000 income level, the Newark, New Jersey, burden of $23,420 is more than seven times the Anchorage, Alaska, burden of $3,222."

Of the 51 cities surveyed in the report, 44 paid income tax. Not Anchorage. Residents of 46 of the 51 cities paid sales tax. Anchorage residents didn't. All 51 cities levied gasoline taxes and some kind of automobile tax; Anchorage's rates were 49th lowest. Out of 51 cities collecting property tax, Anchorage's rates ranked 22nd.

Clay McDowell, the policy and budget analyst for the Anchorage Assembly, notes, "There are some studies that show if you're a typical family of four in Anchorage, considering our property tax burden, permanent fund dividends, etc., you actually have a negative tax at the $50,000 income level, where you're actually receiving more from the government than you are paying in."

In the near future, Alaska may lose its status as a tax haven. For Fiscal Year (FY) 1993, petroleum revenues made up 87 percent ($2.7 billion) of the state's $3.01 billion unrestricted general fund revenue. That left only 13 percent of the general funds coming from other sources like taxes on fish, fuel, business licenses, etc.

By the year 2010, in a worst-case scenario, Alaska's petroleum revenue could fall to less than two-thirds of what it was in FY 1993. Fifteen years from now, Alaska could face a budget shortfall of a minimum of $2 billion to $3 billion. Even with severe cutbacks in all state services, new revenue sources must be created.

Taxes are one revenue alternative.

"I think it's inevitable that at some point in time, Alaska will have to have a sales or income tax," says Scott Goldsmith, a professor of economics at the University of Alaska Anchorage's Institute for Social and Economic Research (ISER). "Nobody likes to pay tax, but people are starting to talk more openly about the need for such taxes."

INVESTIGATING AN INCOME TAX

An individual income tax is one of the most common revenue-generating ideas in the country. Out of 50 states, only six don't collect some sort of income tax from their citizens.

Even Alaska has a history of income tax. Though repealed in 1979, the state's income tax generated more than $117 million in FY 1979, almost 10 percent of...

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