To the Members of the Alaska Legislature,
On behalf of National Taxpayers Union’s (NTU) Alaskan members, I urge you to reject the tax hikes proposed by Governor Bill Walker. Though there are many reasons Alaska is facing a serious budget deficit, the primary reason is the drop in oil prices. The decline in oil prices has benefited consumers, but it has put a strain on states dependent on oil revenue to fund government operations. Make no mistake, however, if the Legislature embraces these tax increases proposed by the Governor, hardworking Alaskans will be made poorer and the state’s economy will be less competitive.
Income Tax
Under the Governor’s income tax bills transmitted to the State Legislature (S.B. 134 and H.B. 250, respectively), Alaska would institute an income tax for the first time in its history. The plan would total six percent of the amount a citizen paid in federal income tax.
There are a number of problems with instituting an income tax. For starters, income taxes leave less money in the wallets of consumers who would otherwise spend, save, or invest it -- all positives for the economy. Further, Alaska’s status as one of just seven states without an income tax helps attract businesses and entrepreneurs to the state. Additionally, what happens to the income tax when oil prices rise, as they will surely do in the future? An income tax may be billed as a way to get through a budget deficit, but it will lead to larger, more intrusive and expensive government in the future.
Alcohol Tax
The Governor submitted S.B. 131 and H.B. 248 that would, if enacted, dramatically increase taxes on alcohol in the Last Frontier. As the nonpartisan Tax Foundation notes, Alaska already has the highest tax on wine, the second highest tax on beer and one of the highest excise taxes on distilled spirits.
S.B. 131 and H.B. 248 would continue down the road of misguided fiscal policy by drastically raising already high excise taxes. Specifically, the Governor’s plan would double the tax on spirits from $12.80 per gallon to $25.60 per gallon, double the tax on beer from $1.07 per gallon to $2.14 per gallon, and double the tax on wine from $2.50 per gallon to $5.00 per gallon. These ill-advised and regressive excise tax hikes would hurt Alaska’s tourism and hospitality industries as well as its nascent craft distilling and brewing industries.
Tobacco Tax
The Governor also submitted S.B. 133 and H.B. 304 that would increase Alaska’s cigarette tax by $1.00 per pack. At $2.00 per pack, Alaska already levies the 12th highest tax on cigarettes in the country. The Governor’s proposal would make the cigarette tax the 8th highest statewide levy in the country.
Over the recent past, cities and other local governments have increased their tobacco taxes. In Juneau, for instance, the city levies a $3.00 per pack tax in addition to the statewide levy of $2.00 per pack. This means Juneau has the fifth highest combined state and local cigarette tax in the country. Adding an extra dollar onto the statewide levy would make the combined tax of $6.00 per pack second highest in the entire country – ahead of New York City and only behind Chicago. This is outrageous.
There are a number of problems with hiking cigarette taxes to fund government. For starters, cigarette taxes are highly regressive, affecting low income earners far more than high income earners. It is estimated that over half of adult smokers make less than 200 percent of the Federal Poverty Level. In other words, the tax hikes under consideration would hit particularly hard those Alaskans who can least afford to pay for them.
Finally, and perhaps most importantly, cigarette taxes usually yield far less revenue than initially projected; as the non-partisan National Conference of State Legislatures succinctly noted, “cigarette taxes are not a stable source of revenue.” A 2013 study by the National Taxpayers Union Foundation found that revenue projections were met in only 29 of 101 cases where cigarette and tobacco taxes were raised between 2001 and 2011. That same study concluded that over the same period, tobacco tax hikes were followed by other tax hikes nearly 70 percent of the time, usually after revenues failed to meet initial rosy projections.
Fisheries Tax
An odd proposal in the Governor’s plan is encapsulated by S.B. 135 and H.B 251. These bills would increase the tax rates on fisheries from one percent to five percent, depending on the type of fishery. It is estimated that the seafood industry directly employs 63,000 hardworking Alaskans, meaning commercial fishing is the single largest employing industry in all of Alaska. Nearly 60 percent of all commercial landings nationwide are within Alaska.
The timing of this proposal is especially unwise. As part of the recent customs bill passed by Congress and signed by the president, Alaska Senator Dan Sullivan successfully included language requiring future free trade agreements negotiated by the United States Trade Representative to prioritize elimination of trade barriers to fisheries. The Trans Pacific Partnership and the Transatlantic Trade and Investment Partnership will go a long way toward liberalizing free trade in the commercial fishing market. With 95 percent of the world’s population living outside the United States, Alaska stands to be a major winner in the future commercial fishing market. Adding a tax on Alaska’s fisheries is a dreadful idea as the state stands upon the precipice of emerging as the true global leader in commercial fishing.
While NTU understands Alaska is currently in an unenviable fiscal position, drastic tax hikes would worsen economic conditions in your state and are not worthy of your support. Accordingly, NTU urges you to reject the tax increases put forward by Governor Walker.
Sincerely,
Clark Packard
Policy and Government Affairs Manager
