Alaska Dispatch News published an article Jan. 26 about Clem Tillion that stated Mr. Tillion favors a 16 percent state income tax. Mr. Tillion is a well-regarded Alaska patriot and I respect him for worthy contributions to the state. But I respectfully differ with him on state taxation. I accept the obvious, that the gravy train is near the end of the tracks and those of us who love living in Alaska will have to pay taxes. But is an income tax the answer?
Alaskans deserve better than re-instituting an income tax system tied to such a flawed federal system. The federal income tax system is not only rife with political corruption, extremely complex and burdensome, but it operates inefficiently with archaic technology. It taxes production and discourages hard work, risk taking, saving, investing and entrepreneurship. It would also add to the cost and burden of maintaining records of deductions, credits, exclusions, rebates and other provisions. The hardest hit will be small businesses, which create most of the jobs. We need a tax that does not feed the lobbying and accounting industries and minimizes political corruption.
Sixty percent of tax debts are not pursued and 75 percent of those that use offshore accounts to avoid taxes are not pursued. Millions don't file a return. The IRS admits a "GAP" (the amount of tax liability not paid on time) at near one-half-trillion dollars. Tax evasion is a $0.6 trillion problem and projected to double in five to six years. American corporations are moving their corporate headquarters overseas to avoid combined state and federal corporate tax rates of about 40 percent, the highest in the Organization for Economic Cooperation and Development. Currently over $2.1 trillion in foreign profits is held in offshore accounts by American companies.
If we want a responsible citizenry, then all within our borders should be required to contribute. If Alaska adopts an income tax tied to the federal system, nearly one-half of the tax filers will be exempt from the tax. According to IRS data, almost half of individual income tax filers pay zero taxes.
Our founders had it right. They authored a document that made a federal income tax by definition unconstitutional. They believed proper taxation must be simple, fair and limited to the functions of government as enumerated in the Constitution. They abhorred a confiscatory tax on earnings.
If Alaska must have a tax, we should not bear the administrative cost and burdens of both an income tax and a sales tax that some have proposed. It should be a consumption-based tax only. It is simple, transparent, easy to understand, less burdensome, more economical to administer, provides a much broader and stable taxation base, taxes everyone equally, is difficult to evade and will tax tourist and other enterprises that do business in the state. A Fraser Institute study found that sales taxes did a significant less amount of economic damage per dollar collected when compared to corporate and income taxes.
Nationally, the trend is to cut state income taxes and shift reliance to sales taxes. State legislatures and governors all over the nation are seeking ways to compete more effectively to attract business and industry in order to expand their state's revenue base and create well-paying jobs. According to ALEC (American Legislative Exchange Council), eight of the nine no-income-tax states rank in the upper half of the 50 states in terms of economic performance. A sales tax would be less likely than would an income tax to affect the state's bond rating.
The strongest opposition to a sales taxes is the potential to be regressive. When Americans for Fair Taxation formulated the FairTax, they acknowledged this opposition by including what they call a "prebate." The prebate is essentially a monthly family allowance to ensure that each family unit can consume tax free at or beyond the poverty level, with the overall effect of making the FairTax progressive in application. Based on Department of Health and Human Services standards, no family would be taxed on life's essential needs. To learn about the mechanics of the prebate, visit www.fairtax.com.
If PFD payouts are to continue, whatever the amounts, I would suggest they be in monthly increments to provide more economic stability and timely needs rather than an annual boon. Should a consumption tax and a family consumption allowance (FCA) system be implemented, the FCA could be combined with the PFD payments to provide for family needs.
Wiley Brooks is Alaska state director for Americans for Fair Taxation, and also a retired real estate broker, Air Force officer and Vietnam War veteran. He lives in Anchorage.
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