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Oil’s Decline Threatens to Revive Alaska’s Income Tax After 35 Years

(Sandy Fitzgerald)  The drastic drop in crude oil prices is leaving Alaska’s officials to consider an option that it has not used in 35 years: a state personal income tax.

At one time, royalties from oil paid for 90 percent of the state’s operations, reports The New York Times, residents received annual dividend checks that often came to more than $8,000 for a family of four every fall. Now, Gov. Bill Walker is looking to end the dividend checks and working on getting his state’s economy to be less dependent on oil.

State lawmakers are also looking for less expensive space than the new office building recently opened in Anchorage, with the state looking at not being able to collect two-thirds of the money it needs for its $5.2 billion budget.

While Texas and Louisiana are also highly dependent on oil, Alaska’s situation is different, as the 800-mile Trans-Alaska Pipeline allowed the state to collect royalties from crude oil shipped from Arctic oil fields to the Valdez port. That meant for every barrel of oil, the state collected royalties and a production tax that paid for the state government’s functions and the Permanent Fund savings account, which paid out the residents’ dividends.

Meanwhile, the dividend payments would depend on oil production rates, meaning next year, Alaskans would likely get $1,000 a person, not the current $2,000. In addition, Walker wants to raise taxes on alcohol and tobacco, as well as money from the tourism, mining, energy, and fishing industries.

Walker, an Independent, could face a fight from the Republican-controlled legislature, but he also has some backing, including from Ronald Duncan, president of GCI, a telecommunications company and one of the state’s largest businesses.

“We’ve had it awfully good for a long time, and if we want to protect that, we’re going to have to make some hard choices,” Duncan told The Times.

“I’m a fan of what the governor has done here,” he said. “The fact that he has relatively good approval ratings in the general population is helpful in that regard. The place in the state where the governor has absolutely horrendous approval ratings is in the Legislature.”

House Speaker Mike Chenault agreed something has to be done, and earlier this year, Alaska cut almost all its capital spending, but “we can’t cut our way out of this,” he told a recent business group meeting.

Meanwhile, the energy industry’s lobbying group says it will fight Walker’s plan to collect some $100 million from oil and gas companies, while also reducing the tax credits they can claim by $400 million.