An Anchorage legislator has added another idea to the growing list of tax proposals before lawmakers who are struggling to cover the state’s revenue needs.
Rep. Zack Fields has proposed a personal income tax limited to no more than the amount of each year’s Permanent Fund dividend.
“It’s a net-zero tax on Alaskans,” he said last week.
No matter how much an individual earns, the annual tax would not exceed the amount of the PFD.
In addition, anyone earning less than $75,000 a year would be exempt from the tax.
The second-term Democrat described his bill as, “The simplest possible statute for an income tax that protects the working poor.”
He believes the tax cap might appeal to conservatives who oppose tax rates that escalate as an individual’s income grows higher. Fields believes a traditional personal income tax which stairsteps into higher brackets and rising tax bills could not win approval in the Alaska Legislature.
In addition, capping the annual tax at no more than the PFD helps more than just higher-income people, he said. “We want middle-income people to live in Alaska.”
Fields estimates the tax could raise more than $200 million a year, assuming a dividend similar to the average of the past 10 years of about $1,300 after excluding the 2022 election-year oversize payment of $3,284.
Though $200 million would be far less than other income and sales taxes proposed in the Legislature over the years, it would be sufficient to cover the increase in state funding to public schools under consideration by lawmakers this year.
Fields introduced House Bill 185 on May 3, and it’s not going anywhere in the final week of this year’s legislative session. But he hopes it will get considered next year when legislators return to the Capitol, still focused on a sustainable fiscal plan for the state and new revenues to pay for schools, public services and the annual PFD.
The bill joins a list of proposals to help close Alaska’s long-term budget deficit: a return of the income tax, which the Legislature abolished in 1980; a first-ever state sales tax; and calls for more money from oil producers through production taxes and corporate income taxes.
There would be no wage withholding under Fields’ personal income proposal. Alaskans, and non-residents who earn money in the state, would be required to file an annual tax form and submit payment.
Alaskans could direct the Department of Revenue to withhold all or part of their dividend to cover their tax bill, or they could choose to receive the dividend while also sending payment to the state for their taxes.
Children and others claimed as dependents on someone else’s tax return would be exempt from the new state tax.
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