NOTE: This article is from 2008.
Welcome to my second in a series on state taxes! For information about what I’m trying to do, read my introductory bit. Next on the agenda: Alaska!
Population: 683,478 (47th)
Capital: Juneau
Largest City: Anchorage
Gross Domestic Product: $160 billion
GDP per capita: $43,748 (7th)
2004 election winner: George W. Bush
web site: http://www.alaska.gov/
Alaska does not have an individual income tax – only one of seven such states in the nation.
Alaska has no state sales tax – one of five such states in the nation. However, municipalities can – and many do – collect a local sales tax. Local sales tax, when imposed, hovers at around 5%.
Alaska’s tax rate (as of January 1, 2008) on cigarettes is $2.00 per package of twenty cigarettes, the 6th highest rate in the country (source).
The gas tax rate in Alaska is usually $.08 per gallon, the lowest gas tax rate in the country (source). However, the gas tax has been temporarily suspended by Governor Palin through August 2009.
In Alaska, local municipalities may levy a property tax but few (about 15%) do – Fairbanks is one notably expensive exception.
By state law, citizens age 65 or older and disabled veterans enjoy an exemption from the first $150,000 of assessed value from property taxes.
Alaska does not impose an inheritance tax. The Alaska estate tax was phased out with the revisions to the federal estate tax system as of 2005.
The overall tax burden in Alaska, taking into account taxes paid by individuals, results in a ranking as 50th most-tax burdened state in the country, according to Tax Foundation. That’s right, dead last. Put another way, it’s the least tax burdened.
Soooo… Alaska has the 7th highest GDP per capita and the lowest tax burden of any state. Sounds like the good folks of Alaska are doing alright, huh?
Which begs the question: how? How on earth does a state support itself with no state sales tax, no state individual income tax, the lowest gas tax rate and little other rates?
Federal welfare and big oil.
In 2007, federal funding accounted for almost one-fifth of Alaska’s revenue. During the oil boom, federal funding accounted for nearly one-third of Alaska’s revenue. Most of the remainder came from oil-related sources.
How does that compare with other states? Alaska taxpayers do far better than the national average when in comes to federal dollars. Per capita, Alaska receives more federal funding than any other state in the country, an honor held since 1999. With respect to money received from the federal government versus tax paid, the state ranks 3rd highest nationally. (source)
In other words, much of Alaska’s infrastructure is paid for by federal funds, not state funds. If you don’t have much in the way of expenses, you don’t need much in the way of additional revenue. This means that individual taxes can remain low, making the current felon embattled Senator from Alaska, Ted Stevens (nicknamed “Uncle Ted”) very popular. Stevens, who served for a number of years on the federal appropriations committee, has represented Alaska in the US Senate since 1968 and is said to be one of the main reasons that Alaska received more federal earmarks per capita over the last ten years than any other state.
This isn’t to say that there is no state tax-related revenue in Alaska (yes, double negatives). There is. And while this is intended to be a primer on individual state taxes, it is worth noting that corporate tax revenues from Alaska are considerable, even while Alaska maintains its reputation as a “business friendly” state. This is because much of the corporate state tax revenue is attributed to the oil industry.
Additionally, the completion of the federally funded Trans-Alaska pipeline and the establishment of Alaska as an energy center for gas and oil, has lead to riches in the state. After the pipeline was completed, the state created a program, the Alaska Permanent Fund, that invests and distributes royalties from oil companies doing business in Alaska to eligible residents – the fund may not be used for general expenditures without voter approval. The first check was paid out to residents in 1982. In 2008, the check was a record $3,269 per eligible resident; in 2007, the check was $1654. Eligible residents are those (including children) who have lived in Alaska for a full calendar year.
A second fund, the Constitutional Budget Reserve, was created in 1990 as the result of a lengthy tax dispute with the oil industry (as a result of the pipeline). Hess and other oil companies accused of cheating the state out of revenue, settled. The fund has been used to balance the budget, when necessary. In 2004 the CBR was worth about $2 billion. No funds have been taken out of the CBR since 2005, according to Alaska’s budget. (source)
Oil revenues, together with federal funds, have resulted in prosperity in Alaska. It will be interesting to see how long this lasts. The future of the oil industry is uncertain. Recent hits to the automobile industry and drops in consumer confidence may spur a slowdown, and the threat of a windfall profits tax or other federal increase remains. And while Senator Stevens remarkably managed to hold onto his seat during the most recent election despite being a convicted felon, it is clear that his power is waning in Washington. In a tight federal economy, this will certainly be disadvantageous. It would be foolish, under these circumstances, to depend on these traditional sources of revenue indefinitely. Change is going to come to Alaska. The questions really are: how much impact will there be and when will it happen?
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(Note: Whenever possible, information for this post was taken from primary sources such as the Governor’s Budget, Division of Taxation and Department of Revenue. When necessary, additional information was taken from reputable secondary sources such as reports from Tax Foundation and fact checked against similarly reputable sources.)
In terms of the Federal funding for Alaska, I like to think of it this way. It’s a beautiful state that is being molested for the sake of oil and gas. From a Federal perspective, we’re paying them off for destroying their state.
‘We’ may be destroying their state, but not as fast as they want. I believe it’s Alaskans who want to drill in ANWR so badly. So…THEY are choosing money from oil companies over maintaining their beautiful state and we are paying them extra for the priviledge of giving them what they want. Doesn’t seem fair to me.
So this is where all the “welfare mothers” went!
Okay, it is very true that we are federal welfare whores but let us develop ANWR. Imagine if the people in Iowa were suddenly told that they couldn’t farm on the most arable land in the state because the federal gov’t decided it should be a wildlife preserve. It’s the same thing for us. People hear the words Wildlife Reserve and they picture caribou prancing through the woods. ANWR is like a moonscape over most of it. The initial pipeline didn’t destroy the natural beauty of the state and neither will this. The drill area itself would be about as big as an airport in the middle of an area bigger than some states. And BTW, until you stop driving and using any petroleum product please spare me the global warming lectures.
akryan, thank you for shedding some light on these ignorant liberals. They’re too busy wallowing around in their ignorance to get a clue.
Oh and Stevens was proven innocent, the writer should get her facts straight.
The Truth, the facts are correct. This story was written in November 2008, just a couple of weeks after Stevens was convicted of seven felony counts: http://www.nytimes.com/2008/10/28/washington/28stevens.html
He wasn’t “proven innocent” later. There were charges of prosecutorial misconduct so the conviction was vacated in April 2009. Those are very different things.