“Our new Constitution is now established, everything seems to promise it will be durable; but, in this world, nothing is certain except death and taxes.” — Benjamin Franklin, 1789
When Benjamin Franklin wrote his oft-quoted quip, he was in the twilight of his life, 83 years old, and perhaps sensed his end was near. While certain about death and taxes, he seemed not quite so certain about our young country’s Constitution — adopted a mere two years earlier at the Constitutional Convention held in Philadelphia.
Fortunately, our country’s constitution has endured and served us well. One of its tenets, the Taxing and Spending Clause, Article I, Section 8, Clause 1, grants the federal government its power of taxation for two purposes only: to pay the debts of the United States and to provide for the common defense and general welfare of the United States. The individual states derive this same tax and spend privilege through their concurrent powers.
However, not all taxpayers agree that everything our taxes are used for necessarily falls within those stated purposes.
Our Founding Fathers’ views on taxes represented a diversity of opinion and they should not be presumed monolithic in their beliefs. However, while recognizing the need for taxes, George Washington said it best when he stated that, “… no taxes can be devised which are not more or less inconvenient and unpleasant.”
Having just passed National Tax Day on April 15, there is something inherently distasteful about having to consider new taxes as part of our statewide discussion on the best way to balance the budget. Yet it is a necessary one. Alaska is the least taxed state in the nation, ranking No. 50 in state and local tax burden. It certainly appears our time has come but what is not so certain is which taxes, how much and how they are be implemented.
While our legislators are often subjected to scorn (deserved as well as undeserved) for a somewhat thankless job, I would argue that overall they are doing what we asked them to do: to make tough decisions. This is not an easy task and one not particularly well-suited to our democratic form of government. Everyone has an idea about taxing someone else and it seems sometimes our political system is designed to bend to the will of those who cry the loudest — demanding others pay more — never mind that others are already paying more than their fair share.
Complicating the discussion is our state’s outsized attachment with the Permanent Fund which has been viewed, until now, untouchable. Especially now, we should be most thankful for the legislators and political leaders who had the foresight to establish it. Contrary to popular belief, its constitutional purpose never specifically mentioned use of Permanent Fund earnings for government operations but, on the other hand, it does not prevent it either. Regardless of what you believe, the Permanent Fund belongs in this tax discussion because its dividends essentially function as a “negative tax” and reducing them is effectively another tax — admittedly a regressive one, but a tax nevertheless.
Reducing dividends ensures that everyone has “skin in the game,” not just those that pay taxes. This will become important as each of us realizes that whatever we are willing to give up should and must go towards necessary activities and projects that fund efficient, limited government and diversification and support of our resources. Many argue in favor of a graduated income tax over a dividend reduction since an income tax would be a progressive tax. Perhaps, but since all Alaskans have shared Permanent Fund dividends equally (whether an income earner or not), it seems fair Alaskans should share the reduction equally.
Finally, this brings me to another piece in the budget puzzle: reining in government expenditures to better match our income. When are further budget reductions too much? I would only ask you to consider that for every million dollars the operating budget is reduced, one million dollars in additional taxes would not be needed or one million dollars in additional dividends would be available for distribution.
How many of you believe Alaskans will have the political appetite to reduce the budget after enduring the teeth-gnashing exercise of increasing various taxes as well as reducing Permanent Fund dividends? It makes more sense to reduce the budget first and then plug the fiscal gap with those “inconvenient and unpleasant” taxes. Reasonable people can disagree on the amount of reductions versus taxes but it’s difficult to argue with the order in which they should be implemented.
As PJ O’Rourke famously said, “Giving money and power to government is like giving whiskey and car keys to teenage boys.” While it’s possible for government to be responsible, it is wise for the Legislature to be asking for a demonstration of restraint first.
• Win Gruening retired as the senior vice president in charge of business banking for Key Bank in 2012. He was born and raised in Juneau and graduated from the U.S. Air Force Academy in 1970. He is active in community affairs as a 30-plus year member of Juneau Downtown Rotary Club and has been involved in various local and statewide organizations.
