Unless the Alaska Legislature acts, the state of Alaska will run out of money at some point in the next fiscal year.
The state’s deficit is forecast to be $2.7 billion. Its principal savings account, the Constitutional Budget Reserve, has less than $2.1 billion remaining.
After years in the red, the state has run out of time. The fiscal cliff is here, and we’re about to go over the edge.
The Legislature (and we as state residents) have options. We can spend from the Permanent Fund, we can cut state services, or we can tax ourselves.
We’ve already done the second option. This year, the state’s budget is $10.7 billion. Five years ago, the budget was $13.5 billion. Both of those figures include the Permanent Fund Dividend.
The state isn’t building big projects anymore: Gone are new museums, new schools, dams, bridges and roads. We’ve seen cuts to the ferry system, we’ve seen the University of Alaska cut to pieces, and we’ve seen our local schools flatlined. If the state continues to cut services, we’re likely to see lawsuits alleging the state is failing its constitutional obligations.
At some point, we need to start paying for what we need.
That point is now.
We need a progressive, statewide income tax, and here’s why:
• Oil isn’t paying the bills anymore. While production is up, prices are down, and the state’s long-term forecasts show they won’t rebound any time soon. Solar and wind energy are too cheap, people are buying electric cars, and while there will always be demand for oil (to make plastics and fertilizers, for example), Alaska oil is expensive when compared to other options.
• The Permanent Fund can’t cover the entire deficit. It isn’t big enough. Furthermore, turning to the Permanent Fund will slash the Permanent Fund Dividend. That’s effectively a regressive income tax. If you’re a child or a low-income Alaskan, a $2,000 dividend is much more of your income than if you’re a rich Alaskan making $100,000 a year. Cutting the dividend, as the Legislature did this year and Gov. Bill Walker did last year, is the equivalent of a tax that hits the poor hardest.
• A statewide sales tax harms local communities, taxes the poor more than the rich, and doesn’t collect money from out-of-state workers. Imagine paying a 5 percent state sales tax on top of your local Juneau tax. How many more things will you buy online instead of at a local store? Imagine a worker from Oregon at a logging camp or aboard a fishing boat. If she flies into the state for work, then flies home, she’s not paying sales taxes. She would pay with an income tax. Think of a poor Alaskan living paycheck to paycheck, spending only for food, clothing, rent and necessities. All of those things will be subject to a sales tax. A rich Alaskan might spend more on those necessities, but he’ll be putting plenty of his money into savings, investments or Outside travel, things not covered by a state sales tax. Under a state sales tax, the rich get a break.
No, a properly progressive state income tax with a full Permanent Fund Dividend is the way to go. It’s what former Gov. Jay Hammond (the father of the PFD) argued for, and it still makes sense today. Structured appropriately, it can ensure that all Alaskans pay a fair share for the services they need.
Gov. Bill Walker’s proposed income tax doesn’t work. It taxes the poor more than the rich. A better plan was offered by the coalition House Majority last year, but the Senate voted it down. That plan is still a good idea and should return.
Spending from the Permanent Fund can reduce the deficit, but it can’t eliminate it entirely. Just look at a presentation this week given to the Senate Finance Committee, the biggest opponent of a state income tax. That presentation showed even if senators got their way, the state’s deficit would last for more than a decade — and that’s if the stock market stayed on a steady, unbroken rise for 10 years.
We’re running out of runway here, and the Alaska Legislature will soon have to make a tough choice. It’s up to you to make sure that lawmakers choose the right option.
