Barbara Haney: Alaska should not have to enact an income tax to pay for government



In the recent revenue discussions in Alaska, there have been attempts to popularize the notion that economists judge taxes based on distributional analysis.  Economists do consider the fairness of taxes; it is not the ultimate rata of determining tax policy.  This brief missive is an effort to set the record straight on the matter. 

While I realize it is difficult to imagine with barrel prices in the $65 to $70, a Permanent Fund value over $80 billion, and a rate of return on the fund over 28%, that Alaska would even need to levy taxes, here we are, courtesy of the Percent of Market Value (POMV) statute imposed by a prior Legislature (SB 26 in 2017).

At the outset, I would like to point out that not all revenue proposals involve a “tax.” Governments have many tools they can use to generate revenues, and some governments have more tools than others.  In an earlier time when the state of Alaska faced a similar budget crisis, they chose land sales, lower permanent fund dividend checks and strict budgeting measures as part of their solution set. 

There are several revenue proposals in Alaska’s current crisis that do not involve taxing Alaskans. They could take an overdraw of 7-10% and still leave the permanent fund with a year-to-date return over 18%. Hopefully, these proposals will be given the serious consideration that they deserve. 

But this has not fully halted the tax discussion. In recent years, that three-letter word has been bandied about with this term called “distributional analysis.” Distributional analysis looks at how various taxes affect different income groups-and often a means by which revenue discussions are hi-jacked to become discussions of income and wealth redistribution. 

The truth of the matter is that the wealthiest people will find ways around a tax that is onerous- and they often regard it as a bit of a sport.  Indeed, there are entire industries that thrive on finding loopholes in the federal tax code. 

The poorest people also avoid taxes because they have no money to buy anything and no income to tax- those at the upper end of the poverty ladder on government assistance have tax-free EBT.

So, draw all the graphs you like of all the income strata you like- the richest and the poorest are almost never taxed by any appreciable amount and it is those in the middle income that always bears the brunt of a tax.

The primary objective of a tax is to obtain revenue to finance government operations, not to redistribute wealth.  Some people think it is an effort to legislate morality or altruism- and sometimes moral arguments are made to defend a particular tax measure, but that does not mean the principal goal of the tax is not revenue. 

If the objective was anything other than revenue, there would prohibitive alcohol and cigarette taxes- and they are levied on these products because the consumers of these products are a bit habitual and relatively insensitive to price changes in the short run; economists often called an inelastic demand.  If the goal was truly morality, the tax on alcohol and cigarettes would be twice what they currently are in Alaska. But if the tax was double, it would be worth the hassle to have friends send me cartons from a low tax area such as Missouri, or to engage in my own production. Clearly, the rate is set to maximize revenue, not to prohibit the activity.

Collecting revenue is only part of the equation in evaluating a tax; it should also be relatively low cost to collect. Collecting a million dollars in taxes and spending two million to collect the tax is counterproductive. Hiring a cadre of accountants to do audits (like 102 in Montana for their income tax) and the purchase of millions of dollars in software and equipment to collect an income tax, even if a low rate, is not exactly the lowest cost revenue option the state could select.

In fact, that is why “taxing” a portion of the Permanent Fund has been the preferred revenue source of the legislature — it yields revenue without the costly revenue agents.  The bigger the bureaucracy needed to collect a tax, the less profitable it will be relative to other taxes. 

Another consideration in collecting taxes is the disruption in choice sets those taxes create- often referred to in economics as distortions or inefficiencies. Optimally, one would like to minimize the disruption in choice sets and the actions of people in the market. One tax of sorts is the withholding of the permanent fund dividend, which has amounted to a 45-50% “tax” on that source of income.

Whether you are rich or poor, smart or dumb, newborn or dying, Alaskans have faced high tax rates on their PFD earnings — and this year it seems to be a 100% tax. 

Given the population data showing the net outmigration from the state since 2016, it seems Alaskan residents are likely to vote with their feet to warmer climates. While some banter the drum that the state needs to “fund services,” one has to wonder what services need to be provided to a depopulated state. 

In sum, the state of Alaska is in a position that it should not have to levy taxes, and it certainly has several non-tax revenue options. But should the Legislature decide to tax the people of the state, it should base its tax selection on its ability to obtain revenue at the lowest administrative cost and in a manner that is least disruptive to the economic decisions of those who are taxed.

However, I would encourage the legislators to give all other fiscal measures a full examination before implementing taxes. 

Barbara Haney received her Ph.D in Economics and Public Finance from the University of Notre Dame and previously served as the director of the Center for Economic Education at the University of Alaska Fairbanks and as a private consultant. She is currently staff to Rep. Mike Prax, House District 3. 


  1. By how Dependent Alaskans been raised, added and incremental increased taxes each year looks inevitable, Unless Alaskans can allow budgets be cut without complaining and threatening to Recall every leader who tries.

  2. I have had enough of giving my earnings to our corrupted government.

    The only thing I have left for them is my riteous indignation!

    • I have some *righteous* indignation to give. Maybe even a little riotous indignation if they don’t knock off this talk of an income tax.

  3. We have the most bloated state budget in the Union. Just lower medicaid reimbursement to lower 48 levels. If people want free health care move to California.

  4. Alaska needs leadership. The permanent fund can be given to the people on a pro-rata basis now if they vote for it.

    The way things are going the state will spend this Permanent Fund money to pay for massive government spending and red tape that has killed the oil and gas industry and many others in Alaska.

    The key to Alaska’s apparent need for more and more money is to stop using the money it has to discourage investment risk capital coming into Alaska’s Natural Resource exploration and production business. The leadership can not keep paying for more and more government jobs to create red tape that stops the monitorization of the states Natural Resource assets.

    It is time to think and attract investment by eliminating all taxes on Alaska’s Natural Resource exploration and production business and kill the red tape.

    With a state 2 and 1/2 the size of Texas that owns most all the mineral rights it is easy to see if you fix the broken system of massive red tape, you can watch the state royalties prosper more and more as you tax less and less.

    • First, divvying up the PF is a silly idea and it will never happen. But even if it did, please remember that that fund’s current value represents the cumulative efforts of all Alaskans who have contributed to the State’s success since the fund’s inception, and therefore all current and past residents (back to that date) would be entitled to a share. Sorry to rain on your parade.

      • Wrong. By that analysis, those that don’t live here anymore should still get an annual dividend. You leave, you relinquish your share interest, whether for an annual payment or a final payout.

  5. Note to PhD economist: The market doesn’t always go up, and denial isn’t a good solution to a real problem.

    Time to pay up, Alaskans. The party’s over.

    • No, time to spend within our means.
      I have thought and said this since moving to Alaska decades ago: Alaskans live in a financial fantasy world, almost completely removed from reality. The boom days of the pipeline and initial North Slope gushing production are over, and NO amount of pocket-picking the populace can continue to pay for the current drunken-sailor level of spending by state government.

  6. Stop even talking like the State needs more revenue – CUT spending, not just the budget. This means that some State employees are going to be laid off. It also means that the average salary and benefits of those employees must drop down to private business levels for equivalent positions. We have too much government and we’re paying them too much money, period. Stop stealing the PFD.

    • While you speak truth in most things, employees hired with promised conditions should have those commitments honored. However, for future employees the terms should change to be competitive with the private sector, or perhaps be contracted all together. When we fail to honor our commitments we lose credibility. There is still lots of room to cut bloat without dishonoring our employees.

      • You’re right of course KE – we must honor our commitments. But can we stop with the union-driven inflated compensation and bring it down to earth? We pay people on a scale that depends on how many people work under them – so they slow down and hire help. We must learn to reward productivity. This will be a structural overhaul. We have some wonderful, dedicated, State employees – and I wish that they were all that way – but it only takes a few to dishonor the rest. We have too much government.

  7. I can’t think of anything that would be more unpopular in AK than an income tax (not to mention damaging to the state economy). Maybe they’re trying to encourage more (of the productive) people to move to TX and FL? I have no idea why politicians keep bringing this up. Hell, there’s no point in even having a PFD if you’re going to do this (they’ll probably convert it into a tax credit or some such garbage on your state return and use it as a “needs” based vote-buying mechanism like anything else).

    They’d have an easier time levying a state sales tax (and consumption based taxes are always preferable to taxes on productivity anyway), not that they should.

  8. I thought the author was going to point out that Alaska can presently balance the budget without employing economically destructive sales or income taxes AND afford a $525 Dividend.
    Those taxes are off the table until the Dividend is ended or re-formed as a means tested program with a legitimate constitutional “purpose”.
    It is the big dividend people that are driving us towards increased taxes and a constitutional fight over the very purpose of government.

  9. Private management may mismanage. Public state administrators may not mismanage. We have a corporate bylaw on the books regarding distribution of the PFD property rights distribution. That is intended to be done as first priority. After that a sustainable budget plan must be completed. Very straightforward and simple unless one is dishonest. If one is dishonest one should be hauled permanently out of his emolument never to return by the people’s sheriff or Alaska’s designee. Who is Alaska’s designee. This is not a rhetorical question. We can no longer overlook THIS MISMANAGEMENT. THIS Work should have been completed within 90 days from January 1, 2021. These people are in a state of complete malfeseance.

  10. We don’t have an income problem, we have a spending problem!
    At home, the cancellation (delay?) of Willow cost a job. Income for the year is down, and while not yet eating seed corn, reserves dwindle. We reacted: basic food stuffs, very limited trips to town-mostly on Sunday in conjunction with church, no discretionary spending, another year deference on projects in hope of new regular work, cutting our own wood for winter heat since time is available, and in the interim any work to fill the gap, plus a PFD and Caribou will really help fill the larder.
    We will survive. Unlike our legislature, which fritters away the session with beer pong, then goes into expensive special session after session while accomplishing little (nothing), and actually pushing more spending of money, which is lacking even for essentials. “I’ve lost my job! Let’s sign up for all the credit cards and go on a worldwide vacation at 5 star hotels! Someone else will bail us out!”
    Juneau needs to hear loud and clear from everyone that we are fed up with their irresponsibility. Income is down, time for the state to act responsibility. How about a 10% cut in salary for all elected and appointed positions (not the workers out there fixing the roads and protecting civility)? And a true hiring freeze? And look at real ‘entitlement’ reform to return it to a temporary hand up in extraordinary circumstances, not a multi generational way of life?
    The trajectory is not sustainable. Even if we do get another oil boom, they will just piss it away.

  11. Wealthy Alaskans and out of state residents who work in Alaska would like nothing more than for Alaska to continue to rely on the PFD, rather than an affordable income tax that would give Alaskans their PFDs and fund state services that we all use.

    Why should most Alaskans sacrifice the earnings that was created for them and by their shared resources?

    Why should Alaska be treated as a resource extraction state that continues to lose long term residents and gain out of state visitors that contribute nothing?

    An income tax is a reasonable way to fund services most Alaskans use. Don’t let the wealthy or the out of state residents, who have no interest in a long term PFD, say otherwise. It’s smoke and mirrors.

    • The fallacy of the income tax (or any other tax) thinking is that it will solve the fiscal problem – the problem is that we cannot control spending. Make some real cuts to spending, not just cuts to a budget, which is merely a plan of how we are going to spend. Our State government is like a person with a credit card and an addiction to spending to the limit – and then complaining that they can’t pay their debt.

      • Where do you want to cut? Education? Healthcare? Transportation?

        And then lose out on Federal matching?

        Why do you think Dunleavy hasn’t effectively cut anything beyond what Walker cut? It’s because cutting spending at this point will only result in economic recessions, and recall elections. The people do not agree with you.

        If our state government is like a person with a credit card, imagine how they pay their bills without a source of revenue. Think long and hard on that one, Rich.

        • There still remains lots of income, but a person earning $5K cannot perpetually spend $10K. It will work for a while, but eventually they run out of other people’s money to spend.
          Perhaps all of those things need cut. Does every school district need a superintendent? How is Walker’s Medicaid expansion working out? The railroad extension to Point Mackenzie? Perhaps enough people are on the dole, as you say, to spend, spend, spend. But once you spend all the Permanent Fund and tax the productive citizens out of house and home, forcing them elsewhere, then you’ve turned us into Venezuela, another oil financial powerhouse that governed itself into poverty.

        • Education, healthcare and transportation. Three great places to START cutting the States budget, imho.
          Think long and hard on that one JR.

  12. I agree. If you have to create a new tax to cover the cost of government, then you have a government that has grown too big and inefficient. If this were business, they’d be put out of business.

  13. All the Liberals here in Juneau want an income tax. They bring it up over and over and talk likes its a cure all for the state’s fiscal problems. The issue is this, how many working residents do we have? In other states where the number of working individuals number in the multi millions, what is Alaska’s? Is is somewhere in the 300,000 range? Perhaps someone has an accurate figure. This tax will be an enormous burden on working class families and we will need an entire agency to oversee it. We will also need to police those with dual residencies like California is doing.

    • Exactly. How high does the income tax rate need to be just to break even on the costs of administering it? But at least we’ll be expanding the bureaucracy and granting state level politicians more power to meddle in our private affairs. So at least there’s that.

      They always say they’re targeting the wealthy. A truly wealthy person couldn’t care less what the plebes are having withheld from their paychecks.

    • GOOD QUESTION! Probably less than 275,000 EMPLOYED Alaskans and THEY are going to carry the state when average take home is under $3,000 a month? Really! Do you hear Democrats? Stop voting for democrats and RHINOS.

    • We come to a point where the takers outnumber the makers. But they can only take for so long until the makers-the producers-grow tired of feeding those who produce nothing. And I’m not talking about productive state employees who keep the machine running, but they also need to realize where their bread is buttered and vote accordingly.
      What happens when a squirrel decides to lounge on a branch in the sun and that there is no longer a need to gather seeds for the winter lean months? If not picked off by the owl, it is banished from the scurry (that’s what squirrel clans are called. A family is a dray) and forced to live its limited days alone until starvation or predators end them.
      Nature is cruel, and we as a society are all part of nature. There is a place for charity, and we have a duty to help our fellow beings through hard times, but when charity becomes a way of life, especially generational, it will lead to the destruction of society for all, to be replaced by something more functional. I recommend to my children to learn Chinese.

    • An income tax will get those out of state workers to pay their fair share (fishermen, slope workers, miners living outside AK). What’s not to like about that-they’ve been sucking AK dry for a long time.

      • ‘Their fair share.’ To begin with, I believe that one of the Commandments is ‘Thou shalt not covet.’
        ‘Their fair share.’ So in your opinion people are just not taxed enough, as in ‘From each according to his abilities to each according to his need’ or some such Obamaism.
        How about government operates at the consent of the governed, and those who rise in the morning to produce get to enjoy the fruits of their labor? We are not undertaxed. Our bloated government bureaucracy, and those making a lifestyle of perpetual dependence upon the fruits of others, are bleeding the state dry at an unsustainable rate. The more money spent, the more rapid the decline will be, and in the end those perpetually attached to the government teat will suffer the most. Best to start the weaning process now for their and our sake.

        • Their “fair share” would be the same as the fair share paid by Alaskans under whatever personal income tax was passed.
          One way or another, it looks like AK needs another revenue source-I happen to land on the side of and income tax, rather than a sales tax, for obvious reasons.

          • First, FIRST!, Alaska needs responsible governance which acts fiscally responsibly with the people’s money. That means careful spending for essential services and not buying this subgroup and that subgroup votes with public dollars. FIRST!
            And these clowns in Juneau can’t be trusted with a bag of M&Ms.
            Should a tax become necessary after they have pilfered the Permanent Fund and all other resources for personal gain, the only ‘fair’ tax is a sales tax on everything without exception. Then everyone has skin in the game.

          • No, sadly most will be out for as much as they can grab of other people’s money, exempting themselves. When the productive become fewer and fewer, the system fails.
            A recent study reveals that in the 400s Rome went from estimated population of a million to a population around 20,000. Studies of bones in the crypts reveal that their diet went from foods from all over the Mediterranean to bare subsistence on local foods. Romans, as a people, ceased to exist.
            In any scheme of stable sustainable government, everyone needs skin in the game. History teaches this, but since most of our society knows nothing of history they will have to learn the hard way. Unless they are old and managed to live a carefree life on the labor of others. Pray that they have no children to suffer for their sins.

  14. Income taxes are coming. Only question is how bad will they be?

    Your best choice for governor right now is the Cowardly Lion getting re-elected. The legislature has zero Fs to give regarding what Alaskans want.

    If people are smart they would begin planning an exodus before Biden locks us all in place

      • Personally, I like Chile and recommend it highly to fellow Alaskans and Canadians. Very low taxes and a tiny Federal government. The area I like is geographically very much like the Yukon and SE Alaska and feels similarly to this region fifty years ago, when I was growing up.
        Best of luck to all Americans!

  15. Have a work fee. for the non residents. as they did in the past if you want to work in Alaska pay a fee. In 1979 it was 50 bucks. Prorated to today’s inflation is 1,083. dollars. That is a permanent fund check to Mr. and Mrs. old bean.

    Stop saying we have a spending problem we have a greed problem money leaving and no infrastructure building to keep money here.

  16. There has not been any real cuts in spending. Pull the numbers and look at the past three years regardless of the funding source. Our legislators have not actually cut spending.

    Why on earth would we impose taxes, and turn around and write checks to everyone! Are we blinded by stupidity?

  17. Government has done nothing for two years and has a surplus. Someone really needs to come out with real number and our legislators needs to buckle down – hee hee – not hardly

  18. Time to split the fund into two distinct funds: the State fund and the People’s fund. The Permanent Fund Corporation invests both the same. Put $53 billion in the State fund. A 5% draw is $2.65 billion. Combined with rising oil revenue and strategic spending reductions, the budget is balanced. The remaining $30 billion becomes the People’s fund. A 5% draw is $1.5 billion, an over $2,000 dividend per eligible recipient, assuming 700,000 residents apply (last year, only 670,000 did). Based on historical performance, both funds will continue to grow, as will the amount available for government programs and for the dividend. There will be the inevitable market corrections so any excess earnings beyond inflation proofing go into reserve accounts for those times. Both funds are enshrined in the State Constitution and the discussion that has paralyzed our decision makers is over for good. All this being said, my first choice is the traditional statutory formula, which worked in both good times and bad. Unfortunately, there is clearly a lack of legislative support for the original PFD statute, so this proposed alternative is designed to be fair and to provide closure.

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