How Alaska Abolished Its Individual Income Tax

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Alaska eliminated its individual income tax after the Trans-Alaska Pipeline was completed, bringing billions in new revenue to the state.

Oklahoma is among a trio of states seriously considering eliminating the personal income tax, reports Stateline, a nonprofit news service that reports on trends in state policy.

The income tax is a “central” source of revenue in all three states, Stateline reports. Here in Oklahoma, the personal income tax is the largest source of state revenue. In FY 2010, it comprised about one-third of all state tax collections.

Alaska was the last state to eliminate the personal income tax, which its Governor, Jay Hammond, did by signing a bill in September 1980.

If eliminating the individual income tax is so politically challenging that no state has done it in 31 years, how did Alaska pull it off?

Alaska eliminated its tax only after the completion of the Trans-Alaska Pipeline System augured billions of dollars in new revenue, writes Stateline’s Josh Goodman.

No other state has taken that step since, but lawmakers in Kansas, Missouri and Oklahoma are talking seriously about it, according to Stateline.

In Missouri, supporters are collecting signatures to get an initiative on the ballot next year that would propose a constitutional amendment eliminating the personal income tax.

In Kansas, Republican Gov. Sam Brownback is expected to propose a cut on income taxes, which include a goal of eventually eliminating the tax completely, Stateline reports.

Here in Oklahoma, Republican Gov. Mary Fallin and other lawmakers have backed ending the tax.

All these plans reflect an important piece of conservative orthodoxy: that taxes on the creation of wealth are undesirable because they impair economic growth. To turn that principle into reality, however, anti-income tax activists will have to overcome both political and practical concerns, Stateline reports.

Republican lawmakers in Oklahoma have opposed the personal income tax for years, and approved rate cuts in 2004, 2005 and 2006, Stateline reports. In 2010, Republicans won complete control of the state government for the first time in history.

The co-chairs of a legislative task force studying taxes have already supported eliminating the income tax, which has elicited warnings from David Blatt, director of the Oklahoma Policy Institute, who is concerned with the elimination’s effects on the poor, and Chris Benge, a Republican former House speaker now with the Tulsa Metro Chamber, who recently cautioned about the effects on transportation, education and health care.

Eliminating the personal income tax means one of two things, according to Stateline.

It either means cutting state revenue deeply, which, critics warn, wouldn’t leave enough money to pay for state services. Or it means finding new tax revenue somewhere else, most likely through levies that will fall more heavily either on low-income people or on businesses.


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