Alaskans, protect dividend and pay taxes

Usually reliable sources tell us that the Legislature is moving toward a partial solution to the deficit situation by cutting the Permanent Fund dividend to a maximum $1,000 from the $1,700 to $2,000 that has been the recent expectation.  Understand what that means.

If they proceed, the Legislature will be imposing an income tax of around $1,000 on every person, regardless of the amount of that person's earned income. The Legislature will also be imposing an income tax on families, of $1,000 per child regardless of that family's income.

Such a proposal should not stand. Yes, we need an income tax but it should relate to the level of earnings of the taxpayer. Though many other tax bases can contribute to funding state government, the main source must be the graduated income tax that the American public authorized by adopting the 16th Constitutional Amendment. Surely it still makes sense, as it did to the overwhelming majority of Americans in 1913, that those who benefit most from the system should pay the most for its support.

As Gov. Wally Hickel noted, Alaska is uniquely the owner state. Unlike other states, the natural resources of Alaska were and are owned by all the people, not by a few.  This was understood by Gov. Jay Hammond when he and the Legislature promoted the Permanent Fund dividend. They decided that all the revenue from state taxes on oil and most of the royalties should go to the state to be used for the common good but that a fund should be created taking one-fourth of the royalties for a savings account. The people agreed in a statewide vote in 1976.

[Alaska lawmakers are following a budget path that's ended in deadlock before. Will it be different this time?]

Under Hammond's leadership, the Legislature also decided that each citizen should be given a dividend from the earnings of this savings account.

From the 1970s into the early 21st century, Alaskans got a free ride for their public services as a result of oil royalty and tax revenue. The result is an artificial economy. In the new world, in which oil taxes are not a dominant factor, businesses and individuals must pay their own way for public services. Moved by surplus wealth and the ingenious pleas of the industry, oil revenue has shrunk, clearly a bit too far. But we are not going to return to the days of vast oil revenue.

So we are returned to the circumstances of statehood, but with an economy that has grown hugely. The good part of this is that with economies of scale and other advantages of size, most of the economy is now in a position to bear most of the burden previously shouldered by oil revenue.

But we are spoiled. Many who should know better think that the public services — education, health, public safety, job security and dozens of other services customarily provided by government — can be funded by cuts. The truth is that they must now be funded by us and in a manner similar to the methods used in other states, and that means taxes.

Even oil states like Oklahoma, for example, supplement other tax sources with a 5 percent income tax. Texas taxes only the income of corporations but raises over 80 percent of its $200 billion plus budget with a sales tax. Maybe a summer tax for the tourist trade, but no more than that thank you. The point is, there is no free lunch.

[Where's Walker? Governor keeps his distance from legislative budget fight]

Opponents of statehood in the '50s argued that Alaska was too big with too great a burden of social services to be given statehood with its shift of costs to residents. The idea that taxes and royalties from natural resource development could meet government requirements was considered with skepticism.  Responding to this criticism, the territorial legislature passed an income tax — 10 percent of the federal — to show we had the will to take on the duties of statehood. This tax survived until the outpouring of oil money peaking in the Hammond administration created a legislative surge for tax-free government services that overpowered all objection.

So Alaska businesses, individual residents and workers from out of state got a free ride. Apart from the repeal of the income tax, other taxes supporting state government functions shrunk as inflation reduced tax levels until Alaska ranked among the lowest nationwide in taxes on liquor, gasoline, etc.

It is rather odd, but perhaps the fact that they have been running with a subsidy for so many years, vests with some citizens the quaint concept that they are independent of government services. It ain't so. Maybe you are this minute with kids out of school, a gun for your public safety and feeling healthy but in the long term, your independence is illusionary.

So, advice for the moment: Don't fall for the con that a reduced PFD is not an (ungraduated) income tax. Fight for your PFD.

John Havelock, attorney general to Gov. Egan, also served on Gov. Hammond's Growth Policy Council.

The views expressed here are the writer's and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com.