New tax proposal from Alaska Gov. Walker would take 1.5 percent of wages up to $2,200

Alaska Gov. Bill Walker on Friday announced his latest tax proposal aimed at shrinking Alaska's $2.5 billion deficit — a 1.5 percent tax on wages that stops at $2,200, or roughly $150,000 in income.

The plan, which would raise an estimated $300 million, was unveiled Friday as Walker called the Alaska Legislature into a special session Oct. 23 — formalizing a decision he'd already broadcast last month.

The special session will be the fourth this year and is Walker's latest attempt at getting lawmakers to adopt budget reforms. He is also asking lawmakers to use the special session to reverse some of the elements of last year's criminal justice reform legislation, in an attempt to head off a rise in crime.

The largely Democratic House majority and the Republican-led Senate majority each voted this year to fill most of Alaska's deficit with investment earnings from the state's $61 billion Permanent Fund, which would have the effect of reducing Alaskans' annual dividends. But lawmakers dropped those proposals when they couldn't agree on an income tax plan favored by the House and opposed by the Senate.

House majority members have pushed for a progressive income tax proposal — one that asks higher percentages from higher earners — as a way to balance the impact of dividend reductions, which hit poorer Alaskans harder. Senate leaders oppose taxes, saying Alaska has enough money in savings to rely on the Permanent Fund alone, leaving a deficit of several hundred million dollars.

Walker administration officials, at a Friday morning briefing with reporters, described the new tax proposal as middle ground. Commissioner of Revenue Sheldon Fisher rejected a description of the bill as an income tax like the plans previously opposed by Senate leaders, noting that it would exempt retirement income and Permanent Fund dividends.

"I don't think this is an income tax," Fisher said. "This is a payroll or a wage deduction tax."

The legislation doesn't attempt to cover the full deficit and would leave a gap of up to $500 million even if passed in combination with a restructuring of the Permanent Fund — a structure that Fisher suggested could satisfy the Senate. Such a deficit, however, would be a significant chunk of the $2 billion that the Walker administration projects will be left at the end of the state's fiscal year, in July, in its primary savings accounts, the Constitutional Budget Reserve and Statutory Budget Reserve.

The legislation also asks for more money — if not a higher proportion of income — from higher earners, up to about $150,000, which could appeal to House majority members. Income above that level wouldn't be taxed; the precise cap on the tax would be twice the annual dividend, which this year is $2,200.

Some 15 percent of the tax revenue would come from nonresidents who have an Alaska source of income.

The presiding officers of both legislative chambers released cautious statements after Walker's announcement Friday, with House Speaker Bryce Edgmon, D-Dillingham, saying that his caucus is still committed to a "comprehensive fiscal plan" — which, according to the House's past definitions, has included some type of tax measure. Edgmon added, however, that the House's commitment is "meaningless unless the Senate follows suit."

The statement from Senate President Pete Kelly, R-Fairbanks, said his caucus is open to more debate about Alaska's fiscal problems. But he also suggested that the majority remains skeptical about taxes, saying that Alaska's budget problems are "best addressed by reducing government budgets and instituting a spending limit."

Before considering taxes, Kelly said, the majority wants Walker's administration to propose budget cuts and a revised forecast of state oil revenue with "responsible estimates." Legislative Republicans argued earlier this year that the administration was using an overly pessimistic forecast to make the deficit appear larger than it actually is.