With oil production on a long-term decline, Alaska needs to consider a small income tax of 2.5% that could be applied equally to everyone, said Rep. Adam Wool, who has a bill before the Alaska Legislature.

Wool said his proposal for a state income tax would bring in about $600 million per year.

“I don’t see a big future burning gas or oil,” the Fairbanks Democrat told the News-Miner Sunday. “Climate change should not be dismissed as someone else’s problem.”

Under the terms of Wool’s bill, 2.5% of an individual’s adjusted gross income would be levied as a state income tax.

“It is a flat tax,” Wool said. “It would be pretty simple to apply.”

Adjusted gross income is a line on federal tax returns. It is an individual’s gross income minus certain deductions that may include educator costs, student loan interest, alimony payments and contributions to retirement accounts.

New tax legislation would take a couple of years to implement, Wool said, so it is critical that lawmakers give the bill serious consideration now. The Legislature currently is in a fourth special session to consider long-term fiscal policy.

A state income tax would apply to workers who come to Alaska from out of state to work. The workers currently do not pay taxes to the state.

The income tax also would apply to owners of many private corporations that are known as “S corps,” such as Hilcorp, the oil company with a presence in Alaska.

An S corp is any business that passes corporate income, losses, deductions, and credit through shareholders for federal tax purposes. In Alaska, only “C corps” are currently taxed.

Wool is hoping his tax legislation will be heard in the House Finance committee, after being introduced in the House Ways and Means committee.

While Alaska currently has a surplus that tops $700 million, Wool is warning that the Covid crisis has yielded hundreds of millions of dollars from the federal government that will come to an end.

“We are going to need revenue for running the state. Our state savings accounts are pretty well drained,” Wool said.

“Our revenue has been below our expenditures. We had a bunch of federal money come in this year,” Wool said, referring to federal dollars related to Covid relief.

“And oil prices are up for now,” Wool added. “But we need to come to terms that oil will not always be king. We cannot sustain the current system we have.”

Alaska has tapped oil revenues to fund state services and programs. Earnings from the Permanent Fund, Alaska’s sovereign wealth fund, have provided dividend checks to Alaskans.

But oil production has been on a long-term decline, and the state has slashed spending and taken money from savings to help offset the budget.

A recent AARP survey of Alaska members found that the vast majority opposed cuts to state and local spending for government, public safety, transportation and other essential services. They also opposed cuts to PFD payouts.

Expanding funding sources for the PFD

Wool’s bill also would change the funding sources for the Permanent Fund dividend, adding payments from oil and gas royalties.

Rep. Grier Hopkins, a Fairbanks Democrat, has a bill before the Legislature that also adds oil and gas royalties as a PFD funding source.

Under Wool’s bill, PFD funding would be split between oil and gas royalties and earnings from the state’s sovereign wealth fund. The dividend would represent 10% of the draw from Permanent Fund earnings and 30% of oil and gas royalties.

Based on the current value of the Permanent Fund and oil royalties, Alaskans would have received roughly an $1,100 check this year, Wool said.

Checks would vary based on the performance of the Permanent Fund and the amount of oil and gas royalties.

“If you accept the fact that we have a PFD and will continue to have a PFD, it is part of our budget,” Wool said. “Then we will need additional revenue.”

“People don’t want to raise taxes to pay a PFD, and I understand that. But unless we totally eliminate the PFD, we will need revenue to pay for it.” Wool said. “Oil is not going to save us indefinitely.”

Contact Linda F. Hersey at 907-459-7575 or at lhersey@newsminer.com. Follow her at twitter.com/FDNMpolitics.

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