Fifteen years later, Sen. Kelly still standing against income tax

Pete Kelly of Fairbanks, Alaska Senate President


Fifteen years ago, the Alaska House of Representatives passed HB-303, income tax legislation to make up for a budget shortfall of $963 million.

The tax itself would raise $250 million, it was predicted, and it would be set as a sliding scale, based on income.

If that tax had gone into effect, the state would have taken at least $3.75 billion out of the pockets of working Alaskans by now. And it’s doubtful, very doubtful, that government would have been smaller than it is today.

Other measures would be required to fill the budget gap back in 2002  — an alcohol tax increase would raise $20 million and the Permanent Fund Earnings Account would be used, with $650 million for state services, and $59 million for local governments.

Rep. Ethan Berkowitz, 2002
Rep. Andrew Halcro, 2002

Anchorage Mayor Ethan Berkowitz was one of those House representatives supporting the tax at the time. So was his contemporary Andrew Halcro, R-Anchorage, who was freshman in the House, but who didn’t run for re-election, instead returning to Anchorage to work on the transition team of  newly elected Anchorage Mayor Mark Begich.

“The free ride is over,” Halcro said in 2002, as quoted by the Anchorage Daily News back then. ”What do you want me to cut? Road maintenance? Construction at nearby Dimond High School? Prisons? Courts? We can’t do this anymore!”

Sen. Dave Donley, 2002

But the measure had to pass the Senate. The Senate was solidly Republican.

Sen. Dave Donley  and Sen. Pete Kelly, co-chairs of Senate Finance, said at the time said, “No way.”

“We had a multi-year plan to cut $300 million, and the House and Senate had worked on it for years,” Donley recalled. Sean Parnell was co-chair with John Torgerson before Donley and Kelly, and had to work on the cuts as well.

There was also an advisory vote in 1998, and the public had gone heavily against using the earnings portion of the Permanent Fund. Donley said that while he and his side opposed using the earnings, his side of the argument was outspent in messaging by Halcro and his group, which spent hundreds of thousands of dollars to support use of the earnings.

“We had a 10-point plan of reforms we needed to make before we’d consider new taxes,” Donley said.

The price of oil eventually rose again. Gov. Frank Murkowski recalculated oil taxes to allow the state to scrape more money out of oil companies. And with higher prices and Gov. Sarah Palin, the Alaska’s Clear and Equitable Share was signed into law. ACES brought a pile of oil money into government, and government grew to take full advantage of it.

Donley never did get his government reforms, and he is now serving on the Anchorage School Board, having been elected in April. He has his red pen handy.

Pete Kelly returned to the Senate after a few years away, and now serves as Senate President. He’s still fighting the income tax.

Andrew Halcro got a political appointment from now-Mayor Ethan Berkowitz, and both still favor an income tax even today.

“The only thing standing between Alaskans and an income tax is the Senate,” Senator Kelly said in an interview with radio talk show host Dave Stieren.


As in 2002, most Alaskans today say that given the choice, a sales tax would be more acceptable than an income tax.

But, as in 2002, Democrats mainly oppose sales taxes because of the burden placed on low-income Alaskans. On April 15 — Tax Day — the House Democrat-led caucus passed HB-115, a personal income tax not unlike the one that passed in 2002, though it’s a bit more aggressive.

Also in 2002, when Gov. Tony Knowles brought House Democrats and Republicans together for a series of closed-door meetings to broker a deal, that action is also repeating itself.

Gov. Bill Walker today invited House Democrat leaders and Senate Republican leaders to the Governor’s Mansion in an effort to broker an agreement.


The co-chairs of Senate Finance, Anna MacKinnon and Lyman Hoffman attended, but Senate President Kelly did not head over to the mansion.

What would be the point, after all? The governor already has said which side he favors — he is insisting on an income tax, higher oil taxes, and a restructuring of the Permanent Fund. It’s not exactly an honest brokerage, said Kelly.

“I don’t mind meeting with the governor, he’s not the mediator in this,” Kelly said, as quoted by KTVA. “This is a disagreement between the two bodies, and he’s not the mediator. His background and his experience as a lawsuit lawyer, those are not people that bring people together, they actually get in-between people and take sides and usually take hostages, too. So I don’t think it’s a role he’s really comfortable with and it’s really not appropriate.”

“The income tax is a big deal,” Kelly said on the Dave Stieren Show. “Alaskans should use the handy dandy Senate majority tax calculator. You can put your numbers in and it will tell you what you’re going to pay. It’s pretty shocking to most people.”

Kelly also warned that HB-115 adopts federal code, which comes with possibly tens of thousands of dollars in penalties for making mistakes on your tax returns.

This vague reference is buried in the back of the bill, he said: “An innocent person reading it won’t see it.”

Besides, imposing an income tax on people during a recession is the wrong thing to do, Kelly said, and he’s sure it is not going to pass the Senate: “I don’t know if the State of Alaska has ever had a Senate with this much resolve on an issue. It’s taken difficult votes. There’s not going to be an income tax.”

Kelly has been battling an income tax for nearly 20 years, and shows no signs of stopping.

His side has offered SB-26 as a complete solution: Restructuring the Permanent Fund to use a percent of the market value of the earnings (known as POMV), putting a spending cap and revenue limits in place, and making cuts in spending to close the fiscal gap.

But House Democrats, as articulated by Rep. Gabrielle LeDoux, have said, “If the Senate thinks we are going to get out of here with only a POMV, they have another think coming.”


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