Tax Guru – Ker$tetter Letter

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Alaskans need to beware of the history of income taxes

Posted by taxguru on January 2, 2016

There have long been a handful of states that have no income taxes on individuals.  However, for a number of decades now, Alaska has been the only state that has had what I have been calling a “negative income tax,” where the State government actually gives the citizens money each year, as a share of the royalties received from oil companies.

Now, with oil prices dropping, those revenues are dropping.  The oil dividends to the citizens will obviously need to be reduced as well.  That makes sense. 

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

Drop in oil prices rocks producer states, triggers historic tax hike plan in Alaska

However, what doesn’t make sense and could lead to a mess is the fact that the governor and others in power are seriously considering bringing back the individual income tax to that State.  In typical flimflam style, they are trying to sell it to the public as nothing to be worried about.  They claim it will only be one percent of their gross income.  Anyone with the slightest bit of historical perspective should remain skeptical of that claim. 

Just as with the Federal income tax in this country, that began in 1913 with rates from one to seven percent, we all know what happens next.  Once the tax is in place, it will be an easy step for Alaska’s rulers to make adjustments to the rates, deductions and exemptions.  I doubt that it will ever reach the extent of the millions of pages of rules and regulations that the Federal Internal Revenue Code has morphed into, but it will most definitely become more complicated and expensive for taxpayers over the coming years.  It always does. 

This is as classic an example as you will ever see of the camel’s nose under the tent warning sign.

CamelNoseTent

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