Gov. Walker and the House Democrats are promoting a false crisis in order to enact a very bad solution. They want Alaskans to believe that the state really, really needs a personal income tax. Right now.
Although Gov. Walker recently proposed a smaller income tax and misleadingly labeled it an “Education head tax,” the gambit is clear: get the proverbial camel’s nose under the tent. Interestingly, the plan landed with a dull thud in both the Senate and House, with House Democrats objecting that it does not go nearly far enough in taxing Alaskans.
However, the so-called crisis is entirely artificial, a ruse to grow government even larger.
The reality is that new taxes on Alaskan families and businesses are entirely unnecessary. The State of Alaska has ready access to adequate funds to support State spending at roughly current levels and still pay a respectable Permanent Fund dividend. The numbers work. I’ve done the math.
Here is a simple, straightforward fiscal plan:
First, pass the Senate version of Senate Bill 26, which moves Permanent Fund management to a “percent of market value” (POMV) approach to earnings withdrawal. That will deliver enough money to fund a $1,000-$1,200 dividend to all Alaskans, while providing $2 billion to support state services.
This alone closes the bulk of the fiscal deficit without new taxes.
But before final passage, SB 26 needs just one crucial amendment: rather than setting the dividend at an arbitrary level and capping it, dedicate a portion of the POMV earnings – about 30 percent – to dividend payments, and put that in statute. This is essential in order to give Alaskans a long-term piece of the action and a rising dividend over time. It offers upside in the future and maintains the public’s direct connection to the Fund.
Adding $2 billion annually to state coffers, combined with ongoing general fund revenue of roughly that same amount, totals $4 billion. That just happens to be the agency operating budget passed by the Senate this April, which included significant but manageable cuts. Voila, problem largely solved.
As a backstop, we still have almost $5 billion in the Constitutional Budget Reserve (CBR). Drawing a modest $400 million each year from the CBR would allow for a respectable state capital budget, keeping our critical public infrastructure maintained and upgraded. At that rate, the CBR would last for well over a decade.
Next, the legislature needs to enact a spending cap and put it before the voters. If we don’t, the next time oil prices jump up we will paint ourselves into a financial corner yet again. This is essential. I would suggest the cap be a bit lower than the status quo, trending down slowly but steadily over the next several years, and then stabilizing.
Pound for pound, we have the largest state budget in the nation by a wide margin. It is laughable to think that there is no room for moderate, responsible reductions.
Alaskans mustn’t allow themselves to be duped by a hard-left House majority and their ally in the Governor’s Office. They are trying to lay the groundwork to grow an already-large government, pure and simple. If new taxes are enacted now, they will only go up over time. You can count on it.
Moreover, taxes on the scale the House majority is calling for would be a heavy, ill-timed blow to our already-ailing state economy. There would be a fresh wave of small business closures throughout the state, accelerated job losses, reduced after-tax incomes and sharper declines in property values.
If we can avoid such unforced errors, there is good news on the horizon. There have been several very large oil discoveries on the North Slope over the past couple of years. Once some of those come on line in the 5-7 year timeframe, they will cause pipeline throughput, and thus state revenue, to leap by 40 percent or more. That is truly a game changer, in a good way, provided that our elected officials don’t fumble it.
The fiscal plan outlined above works. It puts us on a sustainable path, with economic and financial upside for Alaska’s families and businesses.
Scott Hawkins is board chairman of ProsperityAlaska.org. He is President and CEO of Advanced Supply Chain International. Hawkins, an economist, was the founding president of the Anchorage Economic Development Corp.