Cheap Oil’s First US Casualty: Alaska Forced To Tax Personal Income For First Time In 35 Years

With sadly ironic timing, we noted just last week that the blowback from “unequivocally good” low oil prices was set to cross the border from an increasingly suicidal Canada, and so, as AP reports, it appears Alaska is facing the toughest of times. As oil prices make new cycle lows, Alaska Gov. Bill Walker has called for the state’s first income tax in 35 years in order to close a $3.5-billion-dollar deficit the state is carrying. Alaska is currently the only state that does not have a state sales tax or personal income tax, having relied on oil income but, as Walker tweeted, “now is the time for Alaskans to pull together.”

Alaska is one of seven states without an individual income tax, and it’s the only state to have repealed an existing income tax, according to the Tax Foundation, an independent tax policy research organization.

In 1980, after oil began coursing through the pipeline, the Legislature voted to repeal the income tax. Two years later, the first dividends were paid.

Alaska has long relied heavily on oil revenue. In recent years, it provided about 90 percent of the money available for lawmakers to spend. That’s down to about 75 percent, the state Revenue department says.

But, as daily oil production has dropped to 500,000 barrels, and after the recent crash in prices, the state relied on savings to cover about $3.7 billion of its $6 billion budget last year, so this ‘tax advantage’ will soon change, as AP reports, Alaska Gov. Bill Walker is proposing instituting a personal income tax for the first time in 35 years as the oil-dependent state looks to plug a multibillion-dollar budget deficit amid chronically low prices.

In laying out his budget plan Wednesday, Walker also proposed using the fund that provides annual checks to most Alaskans to generate a stream of cash to help finance state government. The plan would change how dividends are calculated and mean lower checks, at least initially — with 2016 payouts about $1,000 less than this year’s.

Alaska isn’t alone among oil-producing states to experience hard times as oil prices stay low.But unlike states like Texas or Louisiana, Alaska has few other industries to make up the difference.

Walker’s proposal also includes:

• Adding a dime to every drink of alcohol and $1 per pack of cigarettes.
• Additional budget cuts.
• Changes to the oil tax credit system, a big budget item.
• Increases to industry taxes including mining, fishing and oil.

The administration says the goal was to spread the burden as widely as possible and that even with the proposed increases, the tax burden on individual Alaskans would be among the lowest nationally.

Alaska has been using savings to balance its budget but is blowing through its reserves at an estimated rate of $10 million a day. The state has been warned its bond rating could be lowered if it doesn’t do more to address the deficit. A hit to the credit rating could increase the state’s cost of borrowing and make it harder to finance a major gas project that Walker sees as critical to the state’s financial future.