Alaska House Republican introduces 2% sales tax bill as part of fiscal plan

JUNEAU — An Alaska House Republican introduced legislation Monday that would establish a 2% state sales tax with few exemptions, but its author stressed it was only intended to pass as part of a broader fiscal plan.

Debates about new taxes are starting in the state Capitol after the Department of Revenue presented a bleak forecast last week, which estimated the state would take a $925-million hit from falling oil prices over the current fiscal year, and the new fiscal year that starts July 1. A Senate proposal introduced Friday would increase oil taxes as way to bridge that fiscal gap, over concerns that would stifle industry investment.

Nikiski Republican Ben Carpenter’s sales tax proposal, House Bill 142, was introduced Monday after he unveiled a separate bill earlier in the month that would cut taxes on corporations. Carpenter said both bills are intended to be part of a comprehensive fiscal plan that could include a new Permanent Fund dividend formula.

Alaska is one five states without a statewide sales tax, and the only state that does not also have a personal income tax. Alaska’s income tax was repealed in 1980.

The conservative Tax Foundation estimated in 2020 that a 2% state sales tax could collect roughly $741 million per year. Previous sales tax proposals have included exemptions for food, medicine and child care, which can be especially exorbitant in rural Alaska. But Carpenter’s bill does not have carve-outs for those spending areas — instead exempting business-to-business transactions from the new tax.

“The more exclusions you add, the less it’s going to raise,” he said.

Several House Republicans declined to comment on Carpenter’s sales tax bill. House Speaker Cathy Tilton, R-Wasilla, said he would need to speak about his vision, and that she understood it was just one piece of a sustainable fiscal plan.

Gov. Mike Dunleavy has introduced two bills to monetize carbon, but neither is expected to raise revenue over the fiscal year that ends next July. The governor’s office declined to comment on any revenue raising measure before the Legislature, except to say that Dunleavy does not support an income tax.

Carpenter’s other bill would enact a 2% cap on corporate income taxes paid by publicly-traded corporations operating in Alaska, including major companies like Walmart and ConocoPhillips. The state’s current 9.4% corporate income tax rate is one of the highest in the country.

The Department of Revenue estimated that Carpenter’s corporate income tax reduction would cost the state roughly $338 million per year in lost revenue. He said that corporate taxes inevitably get passed onto consumers, and that both measures together would help strengthen the private sector.

“That is the portion of the economy that has to grow if we’re going to sustain Alaska long-term,” he said.

In 2017, former President Donald Trump supported Congress slashing the federal corporate income tax rate. The centrist Brookings Institute has studied the impacts of those cuts, and said there is little evidence that they spurred increased business investment. The right-wing Heritage Foundation has said that President Joe Biden’s plan to again raise those taxes would stifle economic growth.

Larry Persily, a journalist and former deputy commissioner at the Department of Revenue, was skeptical that the state’s corporate income tax rate had significantly impacted how large Outside companies’ make investment decisions in Alaska. He also questioned the wisdom of reducing state revenue when the budget is in deficit.

“If you’re tight on money, why would you cut taxes?” he asked.

Dunleavy’s budget proposal has not been significantly altered by the Legislature, except for the size of the Permanent Fund dividend. He proposed paying a full statutory PFD at $3,900, which is projected to create a $917 million deficit.

The House’s current version of the budget would pay a roughly $2,700 dividend and still be in the red by over $400 million. A $1,300-dividend being discussed by the Senate would leave the state $300 million in surplus — but none of the three spending plans contain an education funding boost.

The House Finance Committee debated shrinking the House’s dividend to $1,300 Monday, but all seven members of the Republican-led majority voted to block that. Palmer Republican DeLena Johnson has said a $2,700 PFD is likely the lowest figure the House would support.

The state’s $2.3-billion savings account has been earmarked for spending. The Legislature on Monday approved drawing up to $356 million from that account to pay for unanticipated spending needs and to fill the current fiscal year’s deficit.

The House Ways and Means Committee will be the first hear Carpenter’s bills. Budget hawk Donna Arduin returned to work as Carpenter’s aide, and help craft a long-term fiscal plan from a fiscally conservative point of view. She was Dunleavy’s first budget director, becoming the face of his plan to cut more than $1 billion from the budget to pay for a statutory Permanent Fund dividend.

Anchorage Democrat Cliff Groh, a member of that House committee, called Carpenter’s proposal a “stealth tax,” disproportionately impacting lower-income Alaskans.

“I think a better choice for Alaska and for Alaskans is a high-earner tax that would focus on people,” he said. “Both residents and non-residents who make substantial amounts of income in Alaska.”

Groh introduced a resolution that would put a now-annual draw from the Permanent Fund for state services and the dividend into the constitution. He said that he would have a bill soon to increase oil tax revenue, similar to the Senate’s measure.

Both of Carpenter’s bills were set to first be heard in the House Ways and Means Committee Monday evening.