Cutting taxes for businesses while also imposing a 2% sales tax on Alaskans got side-by-side consideration last week as part of one legislator’s concept of a fiscal plan. Legislators have been discussing various forms of a long-term fiscal plan for years as the state has faced budget deficits much of the past three decades.
A state sales tax and large corporate tax cut were proposed by Rep. Ben Carpenter, a Nikiski Republican who chairs the House Ways and Means Committee. He emphasized at a committee hearing on March 29 that while a state sales tax might seem unusual coming from a fiscal conservative such as himself, it’s an acknowledgement any long-term fiscal solution will require multiple parts.
“I don’t take this lightly of bringing forward a bill that would institute a sales tax on Alaskans,” he told the committee. “I recognize that in order for us to move the state forward in a direction that is pro economic growth in our non-oil private sector economy we need to take some steps that move in that direction and it’s going to take all of us to make that happen.”
Getting either bill through the Legislature will be an extremely tough sell, as majority caucus leaders in both the House and Senate said last week that while they’re open to all revenue ideas, a sales tax isn’t a priority. Also, the deep cut to corporate taxes proposed by Carpenter — 70% of which are paid by the oil industry — would nearly double the roughly $400 million revenue shortfall that already plagues the House’s proposed state budget for next year.
His bill would slash the top corporate tax rate from 9.4% to 2%. The representative said reducing the tax rate would spur economic growth, a common refrain for tax-cut advocates.
The state Department of Revenue estimates the business tax cut could result in an annual loss of about $338 million a year.
Implementing a sales tax could generate several hundred million dollars a year in new revenues for the state. Carpenter’s bill would not exempt items such as food and medicine, and his tax would be piled on top of any local sales taxes.
Concern about Carpenter’s sales tax imposing an uneven cost on residents was expressed by Rep. Andrew Gray, an Anchorage Democrat who noted that a gallon of milk costs twice as much in Bethel as in Anchorage.
“If people in rural Alaska are paying twice as much for their groceries they’re going to be paying twice as much of that tax,” he said. “My fear would be is that some of the people who could afford to pay this tax the least would be the ones expected to pay the most of it.”
Carpenter said the ideal solution is to “find ways to reduce the cost of a gallon of milk in rural Alaska.”
A sales tax is potentially “one tool of a large tool kit” that’s worthy of discussion as part of a broad fiscal plan, but “I wouldn’t say a sales tax is a priority,” said House Majority Leader Dan Saddler, an Eagle River Republican.
Similar sentiments were voiced by state Sen. Donny Olson, a Golovin Democrat who co-chairs the Senate Finance Committee.
“I think you’re going to have to have a combined approach to get over this,” he said. “I’m not ruling anything out, but at least at this point sales taxes are not the thing the Legislature normally get involved with because that’s more the municipality’s domain.”
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