One of the most significant frustrations we have with how both the Legislature and the executive branch present and discuss the budget is their handling of revenue. Far from demonstrating transparency, their approach crosses the border deep into intentional obfuscation.

It’s not that they don’t know how to be transparent. The Legislature’s Legislative Finance Division (LegFin), in particular, is very good at continually breaking down the spending side of the budget into its parts as the annual and supplemental budgets progress through each session. Even when providing periodic summaries, LegFin goes to great lengths to break down spending separately into subtotals for “Agency Operations,” “Statewide Items,” and the “Capital Budget.”

But transparency vanishes on the revenue side. There, the most the LegFin summaries do is generally break revenues down into Unrestricted General Fund (UGF) Traditional Revenues and those resulting from the Legislature’s statutory percent-of-market-value (POMV) draw from the Permanent Fund.

The Department of Revenue (DOR) is a bit better. It breaks down Traditional Revenues into most of its components in both its annual Fall Revenue Sources Book and the following year’s Spring Revenue Forecast update. But even DOR fails in being transparent when it comes to the statutory POMV draw.

When it comes to government UGF revenues, the statutory POMV draw consists of two components. The first is the share of the POMV draw explicitly designated under current law for the government. The second is the share of the POMV draw that is explicitly designated under current law for distribution as Permanent Fund Dividends (PFDs) – individual Alaskans’ share of the income from the state’s commonly owned wealth – but is instead withheld and diverted to the government to close any remaining deficits at the end of a budget cycle.

The portion withheld and diverted to the government is commonly referred to as PFD cuts. Although, like tariffs at the national level, PFD cuts don’t have the word “tax” in their title, according to long-time Professor Matthew Berman of the University of Alaska – Anchorage’s Institute of Social and Economic Research (ISER), PFD cuts, in fact, are a tax, indeed, “the most regressive tax ever proposed.”

The reason for the obfuscation is clear. Neither the Legislature nor, it appears, even the administration of Governor Mike Dunleavy (R – Alaska) wants to be transparent with Alaskans about how much they are being taxed at a household (personal) level to balance the state’s annual budget. By including only the overall POMV draw amount and the portion designated under current law for PFDs that is ultimately paid out as PFDs, neither set of periodic reports from either source enables Alaskans to calculate the portion of the overall statutory PFD amount that is being withheld and diverted.

But it’s not difficult to calculate those numbers from other sources. Although not obvious to most, the Alaska Permanent Fund Corporation’s (APFC) monthly “History and Projections” reports provide all of the information required periodically to calculate the separate portion of the POMV draw designated under current law for the PFD. Deducting the lower amount proposed for distribution as PFDs reveals the portion being withheld and diverted.

We have used that approach in the following chart to show the sources and uses of unrestricted general funds behind both the Fiscal Year (FY) 2026 and the most recent version (at the time we are writing this week’s column) of the FY2027 budgets. The uses of the funds – the spending categories – are on the left of the set of charts for each fiscal year. The sources of funds – the revenues – are on the right. The PFD cut level is in red.

To most with whom we have discussed these charts, the results are eye-opening. In both years, personal taxes (in the form of PFD cuts) represent more than a quarter of overall budget revenues. They represent 28.6% of revenues in FY2026 and nearly a third, 32.3% of revenues in FY2027.

At those levels, they are the single largest source of revenues, outstripping oil royalties, oil taxes, other traditional revenues, and even the portion of the annual POMV draw statutorily designated for the general fund.

They also far outstrip the share of POMV draws distributed as PFDs. For FY2026, the amount of PFDs actually distributed totals $685.3 million. The amount of statutory PFDs withheld and diverted to the government (i.e., taxed) is $1.66 billion, more than twice that, resulting in an effective tax rate on PFD distributions of more than 70%.

Reflecting the significantly larger cut ($1.95 billion versus $1.66 billion), the projected numbers for FY2027 are even worse. While the amount of PFDs projected to be distributed totals only $674.1 million, the amount of PFDs projected to be taxed totals $1.95 billion, resulting in an effective tax rate on PFD distributions of nearly 75%.

Not only are PFD cuts the single largest source of funds, but they are also growing at the fastest rate between the two years of all the sources of funds. As the charts reflect, the amounts contributed by oil taxes, other traditional revenues, and the portion of the POMV draw statutorily designated for the general fund actually decline from FY2026 to FY2027. Of the two sources that actually grow between the two years, oil royalties are projected to rise by 4.5%, while, compared to an overall spending increase of only 2.8%, PFD cuts are projected to rise by over 17.5% between FY2026 and FY2027.

Calculating the actual levels of PFD cuts also enables other comparisons. Some generally claim that the PFD cut level in FY2027 is the same as in FY2026, with both resulting in a final distribution of $1,000 per PFD. But that’s not true. The PFD cut in FY2026 totaled $1.66 billion, while the projected cut in FY2027 is $1.95 billion, nearly $300 million higher. If the amount of the PFD cut in FY2027 was actually held at FY2026’s $1.66 billion, the amount of the individual FY2027 distributions would total nearly $300 million more. Reflecting that alone, the amount of the FY2027 distribution per PFD would be nearly $1,465, or more than 46% higher than for FY2026.

But rather than being distributed to Alaska families, even in part, the entire amount of that growth instead has been withheld and diverted (i.e., taxed) to the general fund.

Calculating the level of the PFD cuts (i.e., personal taxes) also allows a comparison of its impact on Alaska household income with other revenue-raising alternatives.

At least some will recall that at the start of this year’s legislative session, ISER researchers published a new study of Alaska’s fiscal options, updating an earlier 2016 study by previous ISER researchers. Among other issues addressed by the new study is the level of revenue raised from non-residents and others under various alternative approaches. Correspondingly, the results also showed the level of revenue taken from Alaska households under each alternative.

The results of that study are just as eye-opening as the size of the PFD cuts the Legislature is making. The study shows significant differences in the amounts taken from Alaska households across various alternatives. For example, the study concludes that while Alaska households contribute 86% of any revenue raised through PFD cuts, Alaska households only contribute 70% of the revenue raised by using a flat income tax offset by a PFD credit, and only 68% of the revenue raised by using a seasonal sales tax with more exclusions.

As reflected in the following chart, applying these calculations to the PFD cuts included in the FY2026 and FY2027 budgets enables analysis of the impact on Alaska households if, instead of using PFD cuts to raise revenue, the Legislature had enacted one of the alternatives.

All three approaches – PFD cuts, a flat tax with a PFD credit, and a seasonal sales tax with more exclusions – are designed to raise the same total revenue each year ($1.66 billion in FY2026 and $1.95 billion in FY2027). Consistent with the analysis in the ISER study, using PFD cuts raises 86% of that revenue from Alaska households; using a flat income tax with a PFD credit raises 70%; and using a seasonal sales tax with more exclusions raises only 68%.

Because of those differences, either alternative takes significantly less from Alaska households or, conversely, leaves significantly more in their pockets than PFD cuts do.

For example, using the seasonal sales tax alternative, Alaska households would have ended up with $300 million more in their pockets in FY2026 than using PFD cuts. Calculated on a per-PFD basis, that means using a seasonal sales tax would have left approximately $480 more in the pocket of the average individual PFD recipient, approximately $1,250 more in the pocket of the average-sized Alaska household (at the Census Bureau average of 2.61 persons per household), and approximately $1,900 more in the pocket of an average stereotypical Alaska household of 4.

Because of the higher PFD cut, the same analysis for FY2027 shows even larger differences. 

Using the seasonal sales tax alternative, Alaska households would end up with $350 million more in their pockets in FY2027 than using PFD cuts. Calculated on a per-PFD basis, that means using a seasonal sales tax would leave approximately $560 more in the pocket of the average individual PFD recipient, approximately $1,465 more in the pocket of the average-sized Alaska household (again, at the Census Bureau average of 2.61 persons per household), and approximately $2,250 more in the pocket of an average stereotypical Alaska household of 4.

As economist Milton Friedman and others have explained, using withholding to divert a portion of each worker’s paycheck to cover income and other taxes not only makes the amount they are contributing more obscure, but also, through that, the overall costs of the governments they are funding more opaque. 

In the case of most federal and state taxes, some transparency still shines through both on the front end, in the accounting for taxes included on each check stub, and on the back end as the Internal Revenue Service and other bodies generate reports not only on the overall level of revenue raised using the approach but also on the average amounts raised across various groups. But even then, many argue that making the results more remote leads to a significantly larger government and a higher level of government take to support it than would be the case if the individual costs were fully transparent from the start.

By failing to explicitly acknowledge, on both the front and back ends, not only the level of PFD cuts they are employing but also the significant support those individual cuts provide to government spending, Alaska is even less transparent than the federal government.

That failure, or put another way, its radical obfuscation on this issue, says a lot about the Alaska government, none of which is complimentary.

Brad Keithley is the Managing Director of Alaskans for Sustainable Budgets, a project focused on developing and advocating for economically robust and durable state fiscal policies. You can follow the work of the project on its website, at @AK4SB on Twitter, on its Facebook page or by subscribing to its weekly podcast on Substack.