Opinions

Income taxes, dividends and 'foundational absurdity' in Alaska

State Senate President Pete Kelly says it would be a "foundational absurdity" for the state to distribute Permanent Fund dividends to the people of Alaska while collecting an income tax from "the producers of Alaska."

He was not referring to Max Bialystock and Leo Bloom, characters in the film and musical "The Producers," but to that subset of dividend recipients who are employed.

"There's a foundational absurdity in the fact that under an income tax, what you contemplate is handing a person a check with one hand and taxing them with the other. And it just doesn't make sense," Kelly told reporters last week.

"It's my opinion that the only thing standing between Alaska and an income tax is the Senate," Kelly said.

Yes, the Senate is standing between Alaska and a durable fiscal plan, one that would balance a reduction in PFD payments with taxation and a reduction in oil tax subsidies.

On Wednesday, the Senate advanced a plan to draw close to $2 billion of earnings from the Permanent Fund to help pay for government.

It is a reasonable compromise plan, as far as it goes. It would protect the fund and the dividend and leave a deficit of close to $1 billion.

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Senate leaders envision cutting $750 million over the next three years. They have not provided details, but their no-tax plan would make the recession worse and probably eliminate 10,000 jobs or more.

The Senate Permanent Fund plan would set the dividend to begin with at $1,000. The state would have to deal with a $1 billion deficit with cuts, taxes or savings.

There is merit in the argument that if withdrawals from the Permanent Fund are not done on a structured basis, the dividend is not likely to survive future budget battles.

That's because the annual budget gap is close to $3 billion and the Constitutional Budget Reserve would be nearly empty after one more year of the status quo.

The House is more likely to pursue a fiscal plan that includes some taxes, a reduction in oil company subsidies and Permanent Fund earnings. There is a slight chance it can reach a deal with the Senate that ends in something other than a train wreck.

The House has been hamstrung the past couple of weeks by hundreds of relatively small budget amendments offered by Republicans, a gabfest designed to drag things out as long as possible and avoid the real challenge of the multibillion-dollar fiscal crisis as long as possible.

If the session wraps us with an unbalanced strategy that relies on the Permanent Fund and unidentified future budget cuts to the exclusion of other revenue sources, don't expect that to be the final word.

Alaskans who favor higher oil taxes and a big income tax and those who favor big cuts in state government seem ready to find common ground in a referendum opposing anything that takes too much from the Permanent Fund.

There is a foundational absurdity in treating the earnings of the Permanent Fund as the state piggy bank, while refusing to talk about taxes.

It would be far better for legislators to acknowledge the competing interests in Alaska, recognize that not everyone is in agreement, and create a sustainable plan with a chance of survival.

That can only happen if  opponents and supporters of higher taxes, along with defenders of the dividend, find a way to give a little. If they don't, the political and economic uncertainty will reduce the long-term prospects for the dividend and make the recession worse.

Columnist Dermot Cole can be reached at dermot@alaskadispatch.com. 

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 or click here to submit via any web browser.

Dermot Cole

Former ADN columnist Dermot Cole is a longtime reporter, editor and author.

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