In a recent Anchorage Daily News commentary, I disagreed with other pieces that argued that PFD cuts should be considered a tax, since the reduction in cash realized is the same outcome as paying a tax.
First, I pointed out that you can take any of the other 49 states. They all have an established stream of revenue that pays for public services. Any one of them could decide to take a portion of that stream, and instead of funding public services, just start sending out checks to everyone. Any of the states could do that, and none of them do. No one in any of those states suggests that not issuing those checks amounts to a tax. No one does because it would be laughable.
Second, I pointed out, that reductions in public services from reduced expenditures, and the ensuing reduction in public welfare, is a very real cost to all citizens. A reduced dividend is no more of a metaphorical tax increase than the reduced services to pay for the dividend are.
In a recent piece in this publication, Brad Keithley suggested this was a “straw man” argument because it was responding to a different argument than the one I was purporting to address.
This is not true. Keithley was suggesting raising taxes to pay for dividends, rather than splitting the current revenue stream. But this is really no different than what I was arguing.
All of the other 49 states have broad-based taxes, either an income or sales tax. Twenty-eight of them have progressive personal income taxes. They are already there; they have raised their taxes to pay for services. And, again, no one is suggesting they butcher the revenue stream to pay dividends. No one is suggesting they raise taxes more in order to send everyone a check. They all could and none of them do.
And these places are no different than Alaska. While Alaska has a stream of money from Permanent Fund earnings, these other places have streams from a broader diversified economic base.
I am all for a progressive personal income tax in Alaska. But to couple that with dividends would be unreasonable. Taxes would have to be higher to pay for dividends. And non-resident workers shouldn’t have to pay income taxes that go toward dividends they cannot receive. (Of course, non-residents should pay for public services, just like residents should.) These workers provide useful contributions to the economy, and generally do not take jobs from Alaskans. Seafood processing has low-paying seasonal jobs in remote work sites, tourism is seasonal, and petroleum and health care often require specialized technical skills not found among Alaska workers.
Even the progressive states understand there is not a tax base large enough and willing enough to raise taxes in order to pay dividends to everyone and fully fund public services.
Moreover, for the past 40 years, Alaska has been unsuccessfully attempting to diversify its economy. It is difficult to imagine a more dismal message to send to outside investors than your taxes here are going to be higher in order to finance a massive undiscriminating government handout.
There are two important things to note regarding the 2016 ISER study often cited by Keithley. First, the title: “Short-Run Economic Impacts of Alaska Fiscal Options.” Emphasis on “Short-Run.” The study was commissioned by the Department of Revenue to look at options for closing the budget gap in the near-term. Thus, for instance, any long-run loss of income resulting from education spending diverted to dividends was not looked at.
Second, not un-related to the first, is the conclusion of the report. The very last sentence reads:
Choices Alaskans make about closing the budget deficit would affect Alaska’s economy and society in many important ways beyond the short-term economic impacts we estimated for this study. We should base our fiscal choices not only on their short-term effects but also on what they might mean for Alaska’s economy and society over time.
Roger Marks is an economist in private practice in Anchorage. Between 1983-2008, he was a senior economist with the Alaska Department of Revenue Tax Division.