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Alaska governor, facing budget deficit, proposes state income tax

JUNEAU, Alaska (Reuters) - Alaska Governor Bill Walker on Wednesday proposed the state’s first income tax on residents in more than three decades, to help close a multibillion-dollar budget shortfall driven by plunging oil prices and a steady decline in production.

A worker waits in line at the general store in Prudhoe Bay, Alaska March 17, 2011. REUTERS/Lucas Jackson

The new tax would generate about $200 million, according to estimates provided by Walker’s office. Alaska’s last income tax was repealed in 1980.

Walker, an independent who unseated a Republican incumbent last year by joining forces with the Democratic nominee, has been at loggerheads with the Republican-led state Legislature over budget issues since he took office.

Opponents of his income tax proposal have said they are reluctant to back it until they are satisfied all other options to cut state spending have been considered.

The income tax and other proposals are part of Walker’s proposed budget for the 2017 fiscal year, unveiled on Wednesday. It includes higher taxes on the alcohol, tobacco, mining and fishing industries and changes to the oil tax credit system.

Another of Walker’s proposals, unveiled last month, would divert some of the money from the state’s oil wealth investment fund, or Permanent Fund, which generates the annual payout based on earnings, toward financing state government.

This year, about 645,000 Alaskans received a Permanent Fund Dividend check for $2,072. A new calculation formula would cut that to about $1,000.

Walker told a news conference on Wednesday he believed his proposals would win the support of the broader Legislature when it reconvenes in Juneau next month, partly because of “the severity of the situation we are in.”

“If they have another way of getting to the same end result, we’ll certainly listen closely,” Walker said.

Oil revenue dropped to 75 percent of the state’s treasury in fiscal 2015 from 88 percent the year before, according to the Revenue Department.

“If we do nothing, we will empty our savings in the constitutional budget reserve, then we will have to tap into the earnings reserve - which means that in five years, Alaskans would no longer get dividends,” Office of Management and Budget Director Pat Pitney said.

Reporting by Steve Quinn in Juneau, Alaska; Editing by Eric M. Johnson and Peter Cooney