Five Alaska governors discuss the income tax
May 1, 2019
It was an extraordinary historical event in the history of Alaska. April 30, 1993, KUAC-TV in Fairbanks brought together five current and former Alaska governors to discuss Alaska’s future. Governors Keith Miller, Jay Hammond, Bill Sheffield, Steve Cowper and Walter Hickel were all sitting at the same table at the same time.
In light of the contemporary interest in the question of personal income taxes in Alaska, let’s take a look at what our Alaska “founding fathers” had to say about it. But first, a brief historical review.
In 1989 the Alaska State Legislature House of Representatives Research Agency provided a history of Alaska’s personal income tax. “Following several years of political battles, the Alaska legislature established a net income tax in 1949 ... The tax was levied on all resident and nonresident individuals and fiduciaries (and also corporations operating in Alaska) at a tax rate of ten percent of the taxpayer’s federal income tax liability.”
The constitutionality of the tax was immediately challenged, but it was upheld by the court. Moreover, “...the court considered the state’s tax, with its reliance on the federal graduated tax rates, to be grounded in a reasonable policy since the tax was structured according to a taxpayer’s ability to pay.”
By the early 1960s several changes had been made to the tax laws. Perhaps the most important was a gradual rise in the personal income tax rate from 10% to 16% of a taxpayer’s federal income tax liability. In 1964 a legislative report found that that “nonresident taxpayers usually had a [disproportionately] higher income tax liability than residents because they were denied the standard ten percent deduction and could claim only those deductions directly connected with income from Alaska sources.”
Tax revenues peaked in the latter half of the 1970s due to “the dramatic rise in total state personal income (and individual taxable income) during construction of the TransAlaska Pipeline System (TAPS).”
Between fiscal years 1975 and 1977 state income tax revenues rose from $87 million to $210 million, but tapered off to $100 million by fiscal year 1980 with the decline of TAPS.
During the regular session the 1980 legislature modified AS 43.20 to provide a partial to total exemption from state income tax for individuals, depending upon the number of prior years the taxpayer had filed a state tax return. In early September 1980, the Alaska Supreme Court ruled that the resident longevity exemptions violated the equal protection clause of the Alaska Constitution. A special session was called and the legislature repealed the personal income tax on individuals and fiduciaries, retroactive to Jan. 1, 1980. In addition, the legislature appropriated about $186 million to the Dept. of Revenue for refund of income taxes paid by individuals and fiduciaries during both the 1979 and 1980 tax years.
However, the personal income tax saga did not end there. It has been periodically debated from then until now both in and out of the legislature. The five governors, however, were mostly in agreement that reinstitution of the personal income tax was inevitable and desirable at some point in the future.
Governor Hickel was focused more on resource development in Alaska than taxes, but he thought that, “You might put an income tax on that would not exceed what the average dividend would be, so we wouldn’t be paying out of our pockets but we’d be taxing all those other people up here.”
Governor Miller recalled that, “I certainly remember how difficult it was to get that income tax through the territorial legislature the first time. It was a mistake to repeal the income tax. It could have been left on the books and brought down to zero. I am sure that eventually it will have to come back.”
Governor Hammond emphatically stated that, “To me it would be asinine to reduce dividends and thereby impose a head tax on Alaskans and only Alaskans without at least first imposing such a thing as an income tax, and taxing revenues from people that come up here.”
Governor Cooper predicted that. “There has to be an income tax within the next 20 or 30 years. An income tax is the fairest and easiest to administer.”
Governor Sheffield observed that, “We made a mistake years ago when we took the income tax off. I participated in that mistake. We didn’t think far enough down the road that it’s a political suicide if you ever try to put the income tax back on. I don’t think we’ll ever get the tax back on again until they cut the budget sufficiently so that people are hurting to the extent that they’ll want to put the tax back on and make it work.”
We’ll end with Governor Sheffield’s prescient observation, but you can find the complete event featuring the five governors on YouTube at the Alaska Film archives channel.
Lawrence D. Weiss is a UAA Professor of Public Health, Emeritus, creator of the UAA Master of Public Health program, and author of several books and numerous articles.