Gov. Bill Walker applauded the Democrat-led House majority on Saturday for passing an income tax, HB-115, which he and the House Democrats renamed last week. It’s now just an “education tax.” Except that, in spite of the name, the tax would pay for all state services.
The road to an income tax started shortly after Gov. Walker took office in 2014.
Gov. Walker convened a group of his trusted allies in Fairbanks that June. They all stayed in the dormitories, and they had break-out sessions and heard presentations about what was important in our state. Participants were specifically told: “Don’t think about how to pay for it. Think about what kind of Alaska you want.”
THE WAYBACK MACHINE — AT THE GOVERNOR’S 2015 TAX CAMP
Must Read Alaska was a brand-new newsletter in June of 2015, with only six editions under its belt. Editor Suzanne Downing drove to Fairbanks and attended the governor’s “Building a Sustainable Future” conference, and wrote this set of observations:
A high percentage of the 165 people invited to Gov. Walker’s Building a Sustainable Future conference in Fairbanks were government workers, retired state or municipal/borough government workers, education activists, academics, environmental activists, union representatives, and general left-leaning political activists.
Very few Republican activists were invited or present, but several Interior GOP activists attended as observers. No Republican legislators took an active part in the conference programs, but several Democrats did, including Reps. Adam Wool, Sam Kito, Geran Tarr, Daniel Ortiz (I-Dem), Harriet Drummond, and David Guttenberg.
The three-day conference was informative. From the outset, participants were led through an exercise to build a case for taxes. Breaking into groups of subject experts and interests, they were first asked to determine which government services were critical.
The HSS group, as shown below, determined that all HSS services were critical, although Pioneer Homes were determined not critical, but expensive. [Side note: Several people in the conference suggested closing the Pioneers’ Homes.]
Participants were repeatedly told not to worry about cost, but simply to identify whether various programs had value to Alaska. The breakout group voting sheets were posted in the dining hall at UAF’s Wood Hall, and an observer could easily see that every group reflected the same experience: Every government service is critical and we’re not spending enough on any of them.
An example of the voting from the HSS breakout session follows. On the left sheet of paper, green means it’s a critical program, on the right sheet, green means there’s not enough funding for it. Note there is one lone red dot against Medicaid expansion:
The next exercise was to determine how to pay for these services. Many tax ideas were brought forward in this process.
The flawed design of the weekend agenda was that it led participants from their Christmas list of all that government should do straight into the wallets of Alaskans and companies doing business in Alaska: Miners, energy companies, fishermen, property owners, sales tax, out-of-state workers, and more. The old adage was brought to mind: “If it moves, tax it.”
There was no meaningful discussion on how to privatize, consolidate, or make efficient current services, or whether local governments should be picking up the costs so voters can have more say in the matter. There was no discussion of best practices from other states for making government more lean and responsive. Taxes were the solution, rather than for example, reducing the number of optional Medicaid services provided by the state.
The conference closing remarks reflected that many of the hand-chosen participants were satisfied with the results of the weekend, that it met their expectations, and that they would be honored to serve as (tax) ambassadors to continue the conversations in their communities, (which were mainly Anchorage, Fairbanks and Juneau).
FLASH FORWARD TO 2017
On Feb. 10, 2017, the House Democrat majority introduced HB 115, which they titled the “State Revenue Restructuring Act.” The bill summary described it:
“An Act relating to the permanent fund dividend; relating to the appropriation of certain amounts of the earnings reserve account; relating to the taxation of income of individuals; relating to a payment against the individual income tax from the permanent fund dividend disbursement; repealing tax credits applied against the tax on individuals under the Alaska Net Income Tax Act; and providing for an effective date.”
The public pushback was profound — polling data shows that Alaskans are still generally opposed to an income tax, unless the pollster frames it as an option between an income tax and a catastrophic alternative. The majority of Alaskans want additional cuts, according to credible polls. They might tolerate a sales tax, but they are likely to revolt politically against an income tax. The House Democrat majority, with HB-115, was going against the will of the people.
Last week, the version that passed had a new name: No longer a Revenue Restructuring Act, it’s now the “Education Funding Act.”
The new description is:
“An Act bearing the short title of the ‘Education Funding Act’; relating to the taxation of income of individuals, partners, shareholders in S corporations, trusts, and estates; relating to a payment against the individual income tax from the permanent fund dividend disbursement; and repealing tax credits applied against the tax on individuals under the Alaska Net Income Tax Act.”
On Saturday, the governor played along with the ruse, sending out a press release praising the House for passage of the sweeping income tax that will be placed on working Alaskans. Here’s his press release:
Governor Walker Praises House for Passage of Education Funding Act
New revenue would provide funding for essential state services
April 15, 2017 JUNEAU – Governor Bill Walker praised the Alaska House of Representatives today for passing the Education Funding Act, which would provide funding for essential state services like education, public safety, and road maintenance. Combined with continued budget cuts and the Permanent Fund Protection Act, SB 26, this bill would fill Alaska’s $3 billion budget deficit and put the state on a path to economic security.
“I commend lawmakers in the House for taking the bold move to pass the Education Funding Act and establish a new source of revenue for our state,” said Governor Walker. “We have seen far too many businesses close in recent years due to the uncertainty in Alaska’s economy. We must pass a complete fiscal plan this year and stop the draw on our precious savings. This includes continued cuts to the budget, a restructure of our Permanent Fund Earnings Reserve, and new revenue. My administration will continue to work with the legislature to pass a complete plan this session so we can move on to building Alaska’s future.”
Governor Walker introduced his FY 2018 budget in December, and stressed the need to establish a complete fiscal plan through continued cuts, restructure of the Permanent Fund Earnings Reserve, and the establishment of a broad-based tax. This bill would fulfill the need for a broad-based tax, and provide a steady source of funding for essential services like public education and state troopers.
NEW TITLE, BUT SWEEPING PROVISIONS
In a move right out of George Orwell’s 1984, the proposed income tax has been rebranded as an “education funding” mechanism.
But the truth is, there is no direct tie to education in the bill. It is simply a general fund tax with a name that proponents hope will make it palatable to the public. After all, it’s for the children.
But it faces tough sledding in the Senate, where the Republican majority has already signaled it is dead.
Senate President Pete Kelly of Fairbanks made this statement:
As I’ve said many times, the only thing standing between Alaskans and an income tax is the Senate. – Sen. Pete Kelly
“The House is a co-equal chamber of the legislative branch, therefore, we plan to give the income tax proposal a fair hearing,” Kelly said. “That being said, reaching into the pockets of working Alaskans – when the state is in the grips of a recession – is absurd on its face. The state lost 9,000 jobs last year, and is expected to lose thousands more this year. This is the worst possible time to penalize people for having a job.
“The Senate Majority’s solution solves the state’s fiscal problem without taxes, which begs the question: why would we impose an income tax on working Alaskans when we don’t need to?” Kelly said.
Alaskans might find it fitting that HB-115 was passed out of the House on April 15, normally thought of as Tax Day for the Internal Revenue Service. (This year that day falls on April 18 because of the Easter holiday weekend.)
Next week, on April 24, will be Tax Freedom Day, or 114 days into the year, when Americans will have paid $3.3 trillion in federal taxes and $1.6 trillion in state and local taxes — nearly $5 trillion, or 31 percent of the nation’s income.
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