Walker adds “capped hybrid head tax” (an income tax) to upcoming special session

I'd be glum, too.Gov. Bill Walker heads into the closed-door meeting with the Republican House minority on Monday, June 5, 2017. (Courtesy Office of the Governor)

Gov. Bill Walker has finally announced the revenue measure for the upcoming October special session: a capped flat-rate tax on wages.

The tax rate would be a flat 1.5 percent that’s capped at an amount equal to twice the value of the previous year’s permanent fund dividend, which would be about $2,200 next year. It translates to a 1.5 percent tax on the first $147,000 of income. The bill is estimated to raise between $300 million and $325 million per year.

The governor did not introduce a plan to restructure the permanent fund as some had expected.

The proposed tax would be levied on both residents and non-residents who are employed or self-employed in Alaska. It would exclude non-wage income like capital gains, interest and dividends (including the PFD), and S-corporation distributions. It has a start-up cost of $10 million to $12 million in the first year and then an annual operating cost of between $5 million and $6 million, according to the Department of Revenue’s estimate. It’d require about 50 additional staff at the Department of Revenue.

The Department of Revenue explanation of the proposed revenue measure.

Overhead costs have been a chief Republican criticism of recent attempts to implement an income tax.

The legislation is said to be based on a proposal put forward by Sen. Click Bishop, which levied a flat head tax on employees in Alaska based on income brackets instead of a percentage. The governor’s new proposal closer to a true income tax, though it lacks progressivity, which was an issue that Democratic legislators had with the Bishop bill.

The bill’s chances in the upcoming special session are unclear. There’s been some talk between the House and Senate, but no deals have been reached.

“My team and I have been meeting with majority and minority members of both the House and Senate for the past several months,” Walker said in a prepared statement. “We have cut more than 44 percent from state spending over the past four years, and drawn more than $14 billion from savings. We will continue to find efficiencies. With the downturn in oil prices, however, it’s clear that we must find a new source of revenue to pay for troopers, teachers, transportation and other essential services. We must end the uncertainty for a healthy economy.”

The new revenue bill will be joined by Senate Bill 54, which aims to reinstate some criminal penalties that were eased in recent criminal justice reform.

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