Dunleavy backs sales tax to cover cost of larger PFD, drops voter approval request

After months of refusing to give the public or the legislature details on how it would pay for the roughly $ 1 billion budget gap created by paying larger dividends, Gov. Mike Dunleavy’s administration is finally talking details.

In a meeting with the Legislature today, officials in the Dunleavy administration said the governor would support a sales tax if approved by the Legislature as part of a plan to pay higher dividends and, above all, that it no longer requires that such a tax be first approved by the voters.

“I understand the governor would support a sales tax,” Revenue Department Commissioner Lucinda Mahoney told the Legislative Assembly’s Budget Policy Task Force, a bicameral group of lawmakers tasked with making recommendations. for a long-term budget plan ahead of the session scheduled to start next Monday.

Mahoney said the administration was “positioned and prepared” to offer a wide range of revenue options during the special fall session, but said the sales tax proposal is still in “extremely, extremely approximate “and may not be presented next week. She told the task force that the administration’s preferred sales tax would be “broad and low with few exemptions.”

To this end, she referred to sales taxes implemented by Wyoming and South Dakota. South Dakota does not exempt groceries from sales tax while Wyoming would. The difference in exemptions translates to a South Dakota-style sales tax increasing almost twice as much as the Wyoming plan, according to the administration’s modeling. One model shows that a year-round South Dakota-style 2% sales tax would bring in up to $ 640 million per year.

Mahoney also suggested potentially applying the sales tax on a seasonal basis first, and leaving it to the legislature to increase it until the whole year in case revenues fall below expectations.

Little has been said about the impact of such a sales tax on Alaskans. Critics have argued that this would place a greater burden on low-income Alaskans who spend a greater share of their income than wealthy Alaskans and therefore pay more of their income to the government.

When Rep. Jonathan Kriess-Tomkins noted that the financial model the administration planned to release on Thursday would allow it to factor in a graduated income tax, Mahoney said, he could only add: “However, I wouldn’t encourage that. ”She didn’t develop further.

Following his election, Gov. Mike Dunleavy proposed a trio of constitutional amendments in 2019 that included a proposal requiring all new taxes to be approved by both the legislature and voters, whether created by law. or by the initiative of the voters. When asked if he still supports that request today, Mahoney said he would not be on the call for the special fall session.

Other income

As for the revenue proposals the administration will present at next week’s special session, Mahoney has planned a minor overhaul of petroleum tax credits, corporate tax changes, a doubling the existing fuel tax and the legalization of gambling. The complete slate covered in the presentation is as follows:

  1. Change the maximum sliding scale per barrel credit from $ 8.00 to $ 5.00.
  2. Require oil and gas flow-through entities to pay corporation tax (IS)
  3. Implement a generalized sales tax
  4. Establish Legalized Gambling in Our State: Internet Gambling, Lottery, and Casinos
  5. Modernize the CIT statutes to include highly digitized companies
  6. Generate income by monetizing our carbon offsets
  7. Increase the fuel tax, excluding aviation
  8. Use of federal funds for income replacement
  9. Prize draw for ERA as a bridging / transition fund
  10. Other ideas from Legislature / Administration / Public

[PDF: Find the full details of the administration’s plan along with the numbers]

The measures are part of a Dunleavy effort to balance the budget while spending half of the Alaska Permanent Fund’s available investment income toward the permanent fund dividend through a constitutional amendment. His proposal would bring the dividend to around $ 2,500 and it would rise to over $ 3,000 by 2030.

The bigger payout that Dunleavy is seeking, however, would create a budget deficit of nearly $ 1 billion this year, according to the administration’s latest estimates which some lawmakers say are overly optimistic. While there is broad support for the dividend, lawmakers have generally been reluctant to advance the constitutionalization of the dividend without specifying how the resulting budget gap would be closed.

The Dunleavy administration has, until these meetings, been reluctant to discuss details of how it actually plans to close this budget gap, whether detailing specific cuts in services or offering additional new revenue. The meetings with the working group are the first time that the administration expresses itself in depth or in detail on the new revenues. Cuts, meanwhile, no longer feature as a major factor in the governor’s budget plan, likely a recognition that there is little will for further cuts after nearly a decade of painful and politically unpopular cuts. .

Keep in mind

Much like the case with the legislature, there is broad support for a dividend with the public, but that support starts to wane as soon as we start talking about paying for it with cuts in services and / or taxes. A recent poll conducted by the Alaska House Majority Coalition shows that 65% of Alaskans support the designation of PFD, but that support has declined dramatically once the question of who pays for it is taken into account. When it relies on cuts to balance the budget, support drops to 48%, and when the state relies on taxes to balance the budget, support drops to just 42%.

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