Alaska's fiscal problem can be fixed. A bump in the road is inevitable, but the dip need not be deep or prolonged with the right mix of remedies. The wrong mix can plunge the state into a deep and long-lasting depression with adverse consequences for all of us. Our legislators must get with it or get out.
If the Legislature is serious about cuts, it must start by dumping $400 million in appropriated subsidies to the oil industry. The renewed appropriation to the patronage-fueled Knik River Bridge bureaucracy must go, the project totally discredited (surely "the last straw") by the U.S. DOT's evaluation. Hard to believe that Gov. Walker would have included it in his budget if the news had not been deliberately withheld by the agency as reported by Dermot Cole in the March 25 issue of Alaska Dispatch News. Beyond these adjustments, it is income the Legislature must come to terms with.
The governor and his legislative allies face lack of public understanding of their own best interest, particularly on the relationship between an income tax and the Permanent Fund dividend.
The income tax is widely condemned, ironically, by the majority of Americans too broke to pay or who pay little. Its special interest loopholes deserve condemnation, but the constitutionally endorsed, graduated income tax is still the best way to fund government, drawing the costs from those who have enjoyed the fruits of the system and are most able to pay.
The Permanent Fund dividend serves many social policies. Gov. Hammond conceived of it as a protection for the Permanent Fund, which, without that link, will steadily diminish through legislative appetite (more on this in a later column). But the PFD is also a minimum income guarantee (a system in place in many countries) and, since it gives its dividend to parents for each child, a children's allowance.
The United States is one of the few advanced nations that does not have a children's allowance, which ranges from a few hundred dollars to about $1,800 dollars in Ireland. If you don't like sending a children's allowance to the well-off, tax it back through the income tax. We have to file federal income taxes anyway, so the tax-back avoids creating a bureaucracy to screen income-based applications.
Permanent Fund dividend cuts hit rich and poor "equally." For most rural Alaskans and the bottom 50 percent of wage earners, PFD cuts ravage income. One calculation has the PFD as 20 percent of the income of the lowest half of wage earners.
The PFD is an essential support for the rural subsistence lifestyle. For each of the 55 years since this writer moved to Alaska, he has heard confident (non-Native) voices announcing the inevitable end of village life and suggesting policies to move the process along. But the end hasn't come. A lifestyle backed by a thousand generations does not die easily. Yes, many villagers move to Anchorage or leave the state, particularly as intermarriage softens lifestyle commitment. But replacements are born so village life, with all its satisfactions and hardships, remains a choice for a substantial percentage of Alaskans. The federal government, following its historic legal commitment to American Indians, supports traditional lifestyles. The Alaska Native Claims Settlement Act provided an additional, self-managed base. Through the PFD, the state has also made an essential contribution to the village support system.
Part of the dividend will be taxed back if the state enacts an income tax. But at a tax rate of 15 percent of federal (a minimum need), a taxpayer would have to make at least $100,000 a year to wipe out one dividend, and the taxpayer would still get a minimum $400 yield as a result of its deductibility on the federal return.
Despite self-interest, too many Alaskans endorse legislators who reject the income tax as a major part of the solution. The "easiest" approach appears to be a postponement of serious fixes because the state has reserves to last two to four years. But each year we draw the $2.5 billion or more required for the budget, we lose future income forever, a permanent income stream of at least another $125 million sacrificed each year.
No, there is every reason to address our problems this year, to fight a big cut in the Permanent Fund dividend and use the more rational income tax among other income measures.
John Havelock, former Alaska attorney general and retired professor of justice at UAA, is a board member of Friends of the Permanent Fund.
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