Tom Boutin: Candidates should make a pledge to not support an income tax - Must Read Alaska
Connect with:
Sunday, January 16, 2022
HomeColumnsTom Boutin: Candidates should make a pledge to not support an income tax

Tom Boutin: Candidates should make a pledge to not support an income tax

gif ad for must read alaska donations

By TOM BOUTIN

Most of my working life has been spent in the private sector but I did work three or four stints in Alaska state government. Very early in the first stint I was talking with a newly appointed Revenue commissioner one Saturday afternoon who asked if I knew why a certain type of public employee so often traveled to the Philippines to bring back a 20 year-old wife right before he retired.   

I had no answer and thought the question was rhetorical. He proceeded to tell me the actuarial/financial implications for the (mostly closed since then) defined benefit retirement programs, facts very new to me at the time. The public employee and teacher defined benefit plans may be now mostly closed to new hires but the payments will continue to almost the very end of this century, and the state costs are very high.

Years later, a long-time state accountant working in a unit assigned to me discovered another costly anomaly in these programs, this time a loss of accounting control for which state government threw in the towel and began absorbing the cost for all other employers.  

Remarkably, a closer look revealed that another accountant in a different department had made the same discovery many years earlier when fixing the problem would have been a magnitude less expensive. That time the discovery occurred when one gubernatorial administration was transitioning to another and the discovery was put on a shelf.   It’s impossible to say how many times this ongoing situation was discovered and shelved, but it was always much less tricky politically to have the state keep picking up the cost and it remains part of the annual spend today.

Some Alaskans may recall an instance almost a generation ago in which a municipality sold its utility enterprise to private investors. Those private investors understandably didn’t want to include any defined benefit pension liability in their purchase so the municipality retained that liability. The state picks up any unfunded liability, no matter the employer. Someone could speculate that the municipality received a higher price for its utility because the state assumed and paid that very real cost, still pays it.

Every part of state government has accumulated costly burdens, management mistakes, and derelictions over the decades. Paying for them remains a large but uncalculated part of the annual budget. For example, much more recent than the retirement costs is the design and construction of the two newest ferries. Those ferries were designed for routes that don’t exist so cannot be used much at all until costly refitting – mostly adding crew quarters – is completed, pretty much doubling the real cost of those vessels. Some say those two small ferries will have cost $500 million before it’s all said and done. 

The earlier so-called fast ferries were a similar debacle, and those were sold at a huge loss earlier this year. A private sector enterprise might not survive such costly mistakes, one after the other, but a state government merely passes the cost along. Many people include the Interior Gas Utility, funded entirely with a state loan with no security and no interest, and the first payment not due until the current class of legislators are long gone, as another costly mistake that may require as much as $100 million more to avoid a costly walk-away.

According to Juneau Empire reports and legislative staffers at the time the Juneau school district has effectuated a scheme that turned an unnecessary second high school into a $300,000 windfall paid to the school district by the base student allocation. Juneau has fewer students in two high schools than it had in one before construction of the second (construction paid by reimbursed debt service in the bargain). A glitch in the BSA/Foundation allows Juneau to collect $300,000 over and above the costs of operating that second building. No one should bet that other school districts have not also found ways to game school funding.     

Similar ongoing needs for money have been taken on by state government in wildland firefighting, satellite boosting, railroads, rural education, higher education, state airports, and uncounted other offices without anyone asking what happens if our economy cannot produce enough to meet the increasing annual costs. 

Nowhere in the annual financial report – the CAFR – is there a tally of these liabilities, and only for that reason are they not balance sheet liabilities. (The hundreds of millions of dollars in unpaid oil tax credits only appear in an obscure footnote, not on the balance sheet.) I doubt there is anyone who has a handle on the full scope of these liabilities, but the ongoing payments are part of the annual state budget, now $13 billion for not many more than 700,000 people ($75,000 for a family of four).  

An income tax is a desperate scheme to conceal these mistakes, and to put the private sector much more directly on the hook for this huge liability. Tax proponents want these real but unspecified costs to show up on your balance sheet going forward. Yes, state employees would also have to pay a state income tax but when state government needs to increase wages in order to remain competitive, or if income tax receipts dwindle as workers leave the state, it can merely increase tax rates. The private sector cannot increase its prices to keep pace.

I am sure that the total annual costs of unnecessary expenditures I have cited here plus the legislative inattention to state petroleum property tax receipts (which the Dunleavy 2020 budget proposed to remedy) exceed the $1 billion that the Walker people intended their state income tax would collect by year four or five. Taxes are always a zero sum game. Only the private sector creates wealth.  Income taxes transfer that wealth right out of your pocket. 

If you’re a small business owner you see that an income tax enacted and signed into law in 2022 would allow state government to keep pace with wage inflation for itself and its own employees at the expense of your employees, your business, and your family’s net worth. Government has become far too large for our economy, and our economy shrunk in part because government shoved it aside. Now our population is also shrinking, and people who want to get ahead are too likely to leave. Alaska doesn’t need a fiscal solution, it needs to be rebalanced with reality.

The specter of a state income tax is a crushing weight on the heart and lungs of our private sector. Every investment decision, every business expansion, every look at Alaska as a possible place to relocate a business is seriously retarded by the drive to put private businesses and their employees on the hook for decades of poor decisions by state government – legacy costs of the government we built with petroleum revenue. 

Income tax proponents don’t even see a problem with having a state income tax at the same time we have the PFD program (despite how poor are the records of Cuba, the Soviet Union and other income redistribution schemes).  Income tax supporters would penalize wage earners with an income tax to coincide with the huge inflation rate that private sector employees and employers already face. Tax supporters would give us an income tax at the same time the White House has given us inflation and undertaken steps to dismantle the remaining real economy Alaskans have.

Because $13 billion is a huge amount of state spending for 700,000 people, and because state government should take measures to clean up its own messes we should demand that each of the four or five men running for governor, and any men and women who may yet enter the race, pledge to veto any state income tax. That pledge would speak much louder than faithless rhetoric about finding new revenue and Alaska being open for business. The pledge requires no state appropriation.  

As you see candidates at forums, knocking on your door, and speaking to interest groups please ask them to make this pledge. 

Tom Boutin spent 17 years in state government, but also had a career spanning 30 years in the private sector, much of it in timber. He retired as president of the Alaska Industrial Development and Export Authority.

     

Donations Welcome

Share

Latest comments

  • How many pledges have we seen candidates sign to support, and then ignored when in office. It means NOTHING! Despite your valid points throughout this opinion piece, no candidate will honor a pledge such as this because, after they’re in office it’s ALWAYS “a much bigger problem than I realized” when campaigning. Just vote the liars out!

  • Taxes are only good when the elected residents are Small Governnent Minded which isn’t the case of who those districts elected. The taxes are only good When elected members truly know what is necessary and unnecessary for government spending else it just feels like a noose round our necks. One admirable characteristic about ‘The Greatest Generation’ was the routine maintenance and frugal budgets. Sure their buildings, homes, and towns could be a bit outdated looking. However! at least nothing was falling apart and government was smaller with lower taxes when their generation was leading the country and states . Hahaha

  • Ironically the state and local governments have destroyed our private economy through Covid counter measures.

    In the meantime, our legislature and our governor has refused categorically to order at a minimum performance audit state operations.

    We have killed the future of our progeny through contempt for conservatism.

    The failures of our leadership past and present are too numerous to catalogue for the normal citizen.

    Too bad.

  • On point article. Those in favor of income taxes want you to believe out of state oil workers will carry that burden while never considering private businesses that that have born the brunt of the last year and half. Compare those with city, state and federal workers who havent missed a paycheck or paid vacation.

    They are like snake oil salesmen. Of which, most politicians of the same ilk use their platform to tell us lies to get elected, then poof! they change their stripes to the highest bidder never considering the votes of the people. Until we the people do our research, take command and vote in every election we’ll continue this landslide to God knows where!

  • Given Alaska’s size, maybe it’s time to carve it up into separate states. Let the socialists in Juneau run the panhandle into the ground. Let those of us in places like the Kenai peninsula and Mat-Su manage our own affairs.

    • You always had that ability. It’s called voting. Sometimes people will be disappointed with the results.

  • No new taxes. Cut the waste and government spending by 50% as a start to responsible spending of the people’s money not the politicians.

  • Mr. Boutin,
    Thank you for sharing your keen understanding on the “background noise” that any dishonest politician would be keen to gloss over on their way to imposing an income tax that will unquestionably be crippling to our State, and its future.

    The University certainly howled these past couple of years, and in the future all of these others will too, the only real question is, at what point will it happen? Will it happen after the private sector economy has collapsed under the burden of being forced to finance this profligacy? Should that come to pass, it is safe to assume that there will be a reckoning at some point, and the farther the can gets kicked down the road, the harsher the comeuppance will end up being for government funded operations.

    We have not heard much about the unfunded liabilities for PERS/TERS, the ones that got paid down by $3 billion toward the end of the Parnell Administration. I don’t know much about the particulars, but I think about it sometimes. That and how Social Security is a relatively new concept in the history of humankind, where people are led to believe that the government should and will take care of them in their old age. Supplanting the importance of family, with a giant ponzi scheme, doomed to fail at some point that could probably be determined with differential equations or some similarly complex computations.

    Its clear, at least to me, that if one has unfunded liabilities on the scale that we are looking at here, the true solution will slip farther away should an income tax be enacted in order to patch things over. Somewhat akin to a wildfire going underground for a winter or two, while it waits on a hot and rainless spring in order to expend its full energy. The uncontrolled devastation can be avoided, but not without difficulty.

    Given the opportunity, I commit to asking every candidate I see to pledge to work against and/or veto any state income tax.

  • God, what a great and insightful article… too bad it will be forgotten in seconds…

  • I seem to recall politicians making pledges and promises in the past. They seem to have no problem lying. A cash pledge that would have to be forfeited might work better.

  • Ironic coming from you. Over 30 years in an industry that cost American taxpayers 1.7 billion over the last 40 years

    • Not sure what you mean. If you mean the two USFS 50-year contracts, I am completely convinced that they made money for federal taxpayers, and years ago I did some analyses supporting that. If you mean logging and roadbuilding for ANCSA landowners, which I did later, we can agree and possibly lament that the corporations chose to eschew sustained yield and that they chose to export everything in the round rather than support Alaska mills, but those log sales made millionaires of many shareholders – tax-free! Yes, those round logs cost American taxpayers a lot of money but ANCSA was a settlement that allowed the pipeline construction to take place, and it was payment for abolishing “all aboriginal rights.” Also, today the USFS allows the timber to rot and die, so at least the ANCSA logging gave jobs to Alaska loggers and made millionaires out of shareholders, many of them Alaskans. No matter what we did, in each case the trees will grow back even as taxpayers sleep (as a Certified Forester I know that).

      • What millionaires? Please name one regular shareholder who became a millionaire from just their Native corporation dividends.
        Those 40k and 60k payouts were one time deals, by one Native corporation. They used up whatever surplus they had at the time, and suffered less income than they could have had otherwise.

  • When considering inflation our State budget is about the same now as it was before Prudhoe Bay, we had an income tax then and people paid attention to where the money was going. Now politicians spend all of their time arguing about how much of the treasury to give away while our State owned infrastructure is falling apart

    • Your opening statement here is incorrect by an order of magnitude. Dunce cap for you, dude.

    • We had both an employment tax and an income tax. But everyone worked; the inverse of now where the majority of working-age people either work for government or are on the dole. The villages that had little to no productive employment back then were wards of the federal government (not the state government as they now are). The BIA paid for and operated the bush schools – federal money coming into the state. If my memory serves me well, as late as 1973 the largest taxpayer in Alaska was Ketchikan Pulp Co. The integrated, value-added Alaska forest products industry employed 4,000, and most of the jobs were year-round, family-wage jobs paying more than their counterparts on OR and WA. My guesstimate is that the AK employment tax and the income tax amounted to less than ten percent of the wage differential between WA and AK. State economists say that if that positive wage differential exists at all today it is less than the additional cost of living here in AK. The economy AK has today has just about nothing in common with the AK economy back then. But there is no doubt there are people who run for office saying they will cut the budget, but once elected they want to slide into more taxes if they can blame the other guy. BTW, I haven’t looked in a while but I am skeptical that inflation alone nearly accounts for the budget increase between say 1971 and 2021. For that pro-spending statement to work people usually also add in the increase in population, climate change, etc. However I think you also need to factor in the poorer job government does today, especially in controlling illegal drugs and other crimes, increased rates of incarceration (very expensive), huge annual payments due retired public employees (many of them not living in AK), and in standardized education test results (which have tanked). Out state income tax back then offered far more honest value than state government can give Alaskans today, with or without more taxes!

  • The Pledge is a good idea and those candidates should be willing to sign on the dotted line which states they shall be held liable for any retraction of that Pledge without the notification to and approval of the public they were elected by.

  • Only fix for Alaska’s money problem will be to kick out 90% of our elected and appointed government officials, and restart from scratch. Another step would be to nerf the public employee unions, which are an albatross around Alaska’s neck.
    It’s all about the money, all about lining personal pockets.

  • This must be why productive Alaskans are scheduled to get the Dream Team of Walker-Gara (or Gara-Walker), Giessel, and The Stutes… to help push their income and sales taxes over the finish line.
    .
    Forget “pledge”, Tom. Experience shows all too well what Alaska politicians’ pledges are worth. Alaska’s legislators are outnumbered 7 to 1 by special interest rackets who buy or lease politicians to get what they want, pledges be damned.
    .
    And if they want an income tax to deflect attention from what they’re scheming with their Communist Chinese BFF’s or giving away to lobbyists’ clients, they’ll get it, and to hell with any “reasoned argument”, including yours.
    .
    No? Take another look at the Alaska Municipal League, who and how many make up this blob of bureaucratic barnacles, how much taxpayers’ money they’ve got safely stashed out of taxpayers’ reach in their “Investment Pool”.
    .
    How one of their own got herself installed as Anchorage Assembly Chair is anyone’s guess. Point is, one could be forgiven for just a teensy bit of angst over the notion of stiffing productive Alaskans to pay for sh(hey!) like that.
    .
    So, Tom, how about something maybe a lot more interesting: Ask candidates in a public forum to sign a written, binding contract with, say, their party Chair obligating the candidate never to support or vote for income or sales taxes… and to resign from office immediately if the candidate does support or vote for income or sales taxes.
    .
    Seems reasonable to ask whether “these mistakes” was meant as a euphemism for a RICO racket of epic proportions.
    .
    Tom’s article seems like the tip of a nasty iceberg. Maybe Tom and others with inside knowledge will turn the wheels that start a grand jury investigation into what this iceberg is all about, no?

%d bloggers like this: