Alaska Income Tax a Sensible Step

As some governors contemplate cutting or eliminating their income taxes, the leader of the only state ever to abandon its income tax wants to bring it back. 

“[W]e have to decide what kind of state we want to have,” Alaska’s Independent governor, Bill Walker, said in proposing a state income tax equaling 6 percent of what residents pay in federal income tax.  Reviving the tax is part of a package of budget reforms to restore public services cut in recent years and stabilize state finances.  Alaska’s deficit is so large that even laying off every state worker wouldn’t eliminate it, Walker said.

Walker’s plan includes spending cuts but would prudently end the cuts-only approach of recent years, which could trigger a recession in Alaska if continued, he warned.

A few decades ago, Alaska seemed a frozen paradise.  Three years after the trans-Alaska pipeline started carrying over a billion barrels of oil a day from wells in Alaska, generating enormous revenue for the state, Alaska in 1980 not only repealed its income tax but also started paying residents annual dividends sometimes topping $2,000 a person.

But no boom lasts forever.  Taxes and royalties from oil companies have plunged along with oil prices.  To cover its current shortfall, the state is tapping reserves at a rate of $9 million a day, and Alaskans are seeing cuts in ferry trips, rural firefighting, and other services that improve the well-being of residents and their economy. 

It’s too soon to know if lawmakers will approve the plan.  But events in Alaska should cause other states — like Kansas and Maine, whose governors want to eliminate the state income tax — to think twice about jettisoning major revenue sources.