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Tuesday, December 12, 2017
HomeAlaska NewsIncome tax isn’t needed because this is a false crisis

Income tax isn’t needed because this is a false crisis

Photo of Scott Hawkins

Scott Hawkins

By SCOTT HAWKINS
SENIOR CONTRIBUTOR

Gov. Bill Walker and the House Democrats are promoting a false crisis in order to enact a very bad solution.

Hawkins

They want Alaskans to believe that the state really, really needs a personal income tax. Right now.

Although 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.

[Read: Governor’s compromise: Camel’s nose under the tent plan]

The reality is that new taxes on Alaska 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.

IT’S SIMPLE: PASS SB 26

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 an 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, good news is 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 five- to seven-year time frame, 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 an 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.  An economist, Hawkins was the founding president of the Anchorage Economic Development Corp.

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Suzanne Downing had careers in business and journalism before serving as the Director of Faith and Community-based Initiatives for Florida Gov. Jeb Bush and returning to Alaska to serve as speechwriter for Gov. Sean Parnell. Born on the Oregon coast, she moved to Alaska in 1969.

Latest comments

  • Rep. Les Gara, Alaska has massive oil and gas wealth that has been kept out of reach of the citizens with 50 years of tricky oil and gas laws.

    The bad leaders over the years have regulated and priced Alaskans out of their own oil wealth.

    Too many paid off elected leaders sold out to the majors, but it can be fixed in 2018 so all Alaskans can prosper and increase their Permanent Fund checks in next election!

    Let’s make Alaska more productive.

  • Serpent with forked tongue acknowledges some truths, yet delivers lies in same talk.

    The truth- Nothing in SB 26 is good, and yes the Alaskan legislature is lying about the fiscal crisis, and the content of this article attempts to advance crappy legislation with half truths.

    • With $60 Billion in the Permanent Fund and the Constitutional Budget Reserve Alaska can do what is right, pay the bills and go home and come back and start fresh next year in 2018.
      Next year the legislature can fix the broken oil and gas system so Alaskans can fill the Trans Alaska Pipeline and bring back the Cook Inlet’s oil & gas greatness.
      Texas increased its oil production by one million barrels of oil per day since Attorney Bill Walker became Governor because they elect their oil & gas commissioner and have a better system that prevents monopolies and provides reasonable permitting and bonding laws that allows competition.
      Alaska is having trouble because the current system keeps oil & gas investors out of Alaska!
      If the next Legislature does away with all tax credits and all taxes it will increase the state’s royalty because investors will produce more oil and gas with a system that is not controlled by a few giant oil companies and a few bad paid off abusive people in power

    • You are well informed, maybe with people like you Alaska has hope!

  • 1. The State needs to impose an Oil and Gas Property tax on assessed valuation of storage held in the ground and not extracted @ 5%. This property tax should be imposed based upon current market rates, and should be in addition to normal property taxes which are paid to local municipalities. If there is no production of either oil or gas on leased property, then on the tenth year, double the oil storage tax.
    2. Cease giving away our oil tax revenue. Rescind SB 21 and Re-enact ACES as of the introduction of SB 21 and collect all back taxes.
    3 Void all oil and gas tax credits. We just cannot afford them.
    4. The Permanent Fund does not belong to the State of Alaska, but to the people of Alaska. However, it has successfully grown to over $60 Billions and is now kicking off over $6 Billion a year into its Earnings Reserve account. In 1980 the dividend was set at 50% of the earnings reserve. We have been defrauded by Governor Walker in 2016, without a vote on the matter. Hopefully that situation will be corrected.
    5. The Governor, if he really can’t tap the constitutional reserve account, can always offer to sell the Permanent Fund; 10% AK State Tax Exempt bonds.Then the other 50% if used to buy those bonds would continue to function as it has previously done, i.e. to counter inflation for the fund.Yet the Governor gets the money he needs to balance his budget.
    6. If he does not balance his budget each year, he will be unable to pay the interest due on the bonds, then the fund will no longer be willing to buy his bonds and he will be constrained to raise tax upon our resource development or reduce his spending.

    • John Kiernan, what fabulous, sensible solutions for Alaska. Are you free to run for governor soon?

      • No one want to invest in Alaska and you want to add a tax, sounds like the plan has more to it, right?

      • Maybe if new investors will invest in Alaska or someone like one of Trump’s kids.

        Many will invest in high risk exploration in Alaska, I think we can have hope if they don’t keep changing the tax laws every other year.

        Many think Alaska should elect oil and gas commissioners and elect the AG because fairness and rule of law has it’s appeal to investors!

        Maybe with some improvements Alaska may be dominant in oil once again!

  • Mr. Hawkins is against a state income tax this year. Last year he was for a state income tax. He is flipping and flopping on the issues. Who can we trust? Not a man who can’t make up his mind or simply tells people anything . Maybe he just can’t remember that far back?