Over time, we have become increasingly convinced that discussions about Alaska’s fiscal policy are driven more by labels and culture-war-like slogans than by hard numbers, as they should be. Following up on an idea generated during a discussion of the issue earlier this week in our podcast, in this week’s column, we attempt to eliminate those influences by using a “blind taste test” to evaluate the approaches, assigning letters (e.g., A, B, C) to the different revenue alternatives rather than their usual titles.

To put them on the same footing, we have designed all the alternatives to raise the same $750 million per year that the seasonal sales tax proposed by Governor Mike Dunleavy (R – Alaska) targeted at the beginning of this year’s legislative session. For reference, the Fiscal Year 2027 budget as passed by the Legislature reflects a $1.95 billion deficit, closed entirely by cuts to the Permanent Fund Dividend (PFD) from the level calculated under current law. The $750 million roughly reflects the amount remaining if the deficit were closed instead through a combination of needed oil tax reform, restructuring the current law PFD to equal 50% of the annual percent of market value (POMV) draw from the Permanent Fund, plus one (or more) of the revenue alternatives designed to raise the remaining $750 million, roughly the “a third, a third and a third” plan we outlined in an earlier column.

While the share each takes from household income would rise or fall if the target amount were higher or lower than $750 million, the relative effect of the alternatives would remain the same.

We have developed four alternatives for this ‘taste test,’ labeled Options A, B, C, and D, which reflect the four main options discussed over the course of Alaska’s now nearly decade-long fiscal “crisis.” While there are variations of each that could shift the basic numbers somewhat in one direction or another, none would change their relative effect compared to the other options. 

In developing the numbers, we have used the adjusted gross income levels reflected by income bracket in the most recently published state-level statistics from the federal Internal Revenue Service (IRS), adjusted for inflation through the end of 2025, and the approach and information reflected in the recent report by researchers from the University of Alaska – Anchorage Institute of Social and Economic Research (ISER) on the “Economic Impacts of Alaska Fiscal Options 2026” (ISER’s 2026 Report).

We have focused the “taste test” largely on two criteria: which takes the least revenue from Alaskans – or conversely stated, which raises the largest share from Outside sources – and how much each takes from Alaska households, by income bracket. 

We use the first criterion because it measures how much of Alaskans’ money stays in Alaska’s private sector. The less that is required from Alaskans, the more that remains in and strengthens Alaska’s private sector. The public sector receives the same $750 million either way.

We use the second criterion because it measures the financial impact of the various approaches on Alaska households and, thus, the influence of fiscal policy on their financial well-being. Given the high cost and other financial challenges of living in Alaska, legislators and others should be deeply concerned about the additional impact their fiscal policy decisions have on the financial well-being of Alaska households.

Here is a chart analyzing the impact of the four options on those criteria:

The left column shows the share of the $750 million in revenue that each option raises from non-residents, as derived from ISER’s 2026 Report. Alaskans bear the remainder. So, for example, of the $750 million raised by Option A (blue), 14% ($105 million) comes from non-residents, while 86% ($645 million) comes out of Alaskans’ pockets.

At the other end, of the $750 million raised by Option D (green), 26% ($195 million) comes from non-residents, while only 74% ($555 million) comes out of Alaskans’ pockets. Measured in terms of the impact per PFD, Option A takes about $140 more per PFD from Alaskans (or, approximately, $360 per average-sized Alaska household) than Option D.

Beginning with the next column (“Low Quartile”), the chart shows the share of revenue taken by the state from Alaska households under each option, by income bracket. The number shown below each bracket is the average adjusted gross income per household in that bracket, calculated from the most recent IRS data and adjusted for inflation through 2025. So, for example, the average adjusted gross income among households in the Low Quartile is $17,496, within the Lower Middle Quartile is $47,261, and so on.

The three sets of columns at the far right are the impact of the various options on three subcategories of the Upper Quartile for which the IRS reports state-level data. The first reflects the impact on those in the Top 10% income bracket, the second on those in the Top 5% income bracket, and the last on those in the Top 1% income bracket.

The impact of each option is expressed as a share of the average adjusted gross income in each bracket. So, for example, Option A (blue) takes 20% of the average adjusted gross income of households in the Low Income bracket, while Options B (red), C (gold), and D (green) each take only about 2%. The difference, a little over $3,000 per household, is money withheld and diverted to pay for state government costs instead of being retained by the household.

As is clear, the different options have significantly different impacts across income brackets. While Option A takes a disproportionately large share from those in the Low Quartile, it takes no measurable share of income from those in the Top 1% and trivial amounts from the remainder of the Upper Income bracket.

At the other extreme, Option B (red) takes a relatively low amount from those in the Low Quartile. However, as Option A does with those in the Low Quartile, Option B takes increasingly large and disproportionate amounts as it works its way through those in the Upper Income brackets.

Part of the reason for those large effects is that Options A and B raise the lowest shares of the overall revenue requirement from non-residents. The result is that a larger share of the costs must be recovered from Alaskans, which, even before the disproportionate effects, leads to higher rates.

Compared to Options A and B, Options C (gold) and D (green) have significantly more moderate effects on the average household in each income bracket. Part of the reason is that they – especially Option D – also take the largest share of overall costs from non-residents, which reduces the amounts required from Alaskans. They also use distributional approaches that spread the remaining burden fairly evenly across the brackets.

From an economic perspective, it seems almost axiomatic that the goal of any fiscal policy should be to minimize the costs imposed on Alaska households by optimizing the amounts raised from non-residents and spreading the remaining burden broadly so that no single group of households bears a disproportionate share of the overall burden.

Unfortunately, that’s not been Alaska’s approach over the last decade. Instead, over that time, following the approach advocated by upper-income-dominated groups such as Commonwealth North, Alaska has largely relied on Option A, which raises the least from non-residents and, among the quartiles, is the most disproportionate. Then why do some push for it? Because while it takes the most from middle- and lower-income households, which together account for 80% of Alaska households, it takes the least from those in the Upper Quartile, the focus of such efforts. 

As we’ve explained in previous columns, the adverse impact on middle- and lower-income households has contributed materially to both the relatively stagnant economic climate experienced by most Alaska families over the last decade and the relatively significant outmigration of working-age Alaskans. 

Put another way, over the last decade, while the fiscal policy decisions made by the Legislature and others have made the economic situation experienced by legislators and others in the upper-income brackets, including their donors, better, they have worsened the overall economic situation faced by most Alaska households. The efforts by some to increase funding for a variety of state programs have been no better than trying to use a band-aid to cover a wound rather than treating the wound itself.

As we explained in last week’s column, while it may make the individual legislators proposing and voting for the programs “feel good” about themselves, as members of the upper-income bracket, they are only contributing a trivial share of their income to the cost. Aside from the relatively few Alaska households who, on net, may be helped by the programs, in general, those in the middle- and lower-income brackets, who bear by far the biggest impact of the costs, are worse off.

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.