Alaska governor: Unless oil hits $110, we need a tax hike

Alaska governor: Why oil's collapse means we need an income tax
Alaska governor: Why oil's collapse means we need an income tax

With a $3.5 billion deficit on the books, Alaska's governor is suggesting a drastic measure: more taxes.

Unless oil reaches $110 a barrel, the state's current budget just isn't sustainable, the governor told CNBC in an exclusive interview Wednesday. And he's not willing to take that risk.

"We need to get away from the cycle of just the price of oil sort of driving our economy," Bill Walker told CNBC's "Closing Bell."

The Trans-Alaskan Oil Pipeline.
Oil-producing states clobbered by fall in price of crude

Oil, one of the state's major exports, has lost 32.29 percent this year, settling down 3.35 percent at $36.60 a barrel Wednesday — on pace for its second negative year in a row. Compounded with dwindling throughput, Alaska needs to diversify its cash flows outside the commodity, Walker, who ran as an Independent, said.

Under a New Sustainable Alaska Plan unveiled Dec. 9, the state's residents would face an income tax of 6 percent of federal tax liability, which is about 1.5 percent of income for the average Alaskan family, for projected revenue of about $200 million.

"Alaska doesn't have a wealth problem; we have a cash flow problem," Walker said.

Alaska Gov. proposes first income tax in 35 years
Alaska Gov. proposes first income tax in 35 years

Indeed, Alaska's rich natural resources and wealth actually pay dividends to residents, Walker said, a payment some have suggested should be eliminated from the budget. But those in rural and low-income areas still need that to offset energy costs, thus the tax, Walker said.

"The income tax itself brings in $200 million for a $3.5 billion problem, so it's not the biggest lever we're pulling at all," Walker said. "It's one of many that we're looking at making some adjustments [to]."

Also on the table are $100 million in additional cuts from the operating budget and $425 million in cuts from oil exploration credits, according to the governor's website.

The move has been politically unpopular, with critics questioning whether it hurts Alaska's competitiveness for business. But even with the new tax, Walker said Alaska still have one of the lowest personal tax rates in the nation.

"I don't believe our doing what other states have done at a very low level ... is going to drive anyone out of the state or keep anyone from coming in to the state," Walker said. "We're just trying to look more like other states, in some respects."

— CNBC's Christopher Hayes contributed to this report.