21-01-99 Alaska is thinking about imposing an income tax and tapping its huge oil-royalty savings account to pay for state services under a plan devised by Democratic Gov. Tony Knowles.

Low prices for oil, the state's main revenue generator, are expected to cause billion-dollar budget shortfalls in each of the next 3 years. Balancing the budget will require major infusions of cash from a reserve that could be exhausted in three years.
Alaskans pay no state income or sales taxes while taking home an annual dividend from the $ 24 bn Alaska Permanent Fund.
"The fact is that we have the wealth and resources to fix the problem of stabilising our fiscal future," Knowles said in the text of his State of the State speech. "The question is: Do we have the wisdom and will to make the savings and investment necessary to achieve a sustainable balanced budget or will we continue to borrow from the future?"
The plan would reinstate the income tax the Legislature, now dominated by Republicans, junked after oil money from the Prudhoe Bay fields began flowing more than two decades ago. The tax would be expected to take in about $ 350 mm, or about one-third of the projected shortfall.

What makes politicians nervous is the proposal to dip into the earnings of the sacrosanct permanent fund. Knowles wants to take $ 4 bn of the paper profits the fund has rolled up in the booming stock market and beef up the state's cash reserve, which would earn enough yearly to bridge the remaining budget gap.