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Skiing buddies disagree on income taxes and the route to Alaska's future

Bob Kaufman and the author, Charles Wohlforth, discussed a proposed state income tax on a ski trip to Skookum Glacier on Thursday. (Charles Wohlforth / Alaska Dispatch News)

Flying on skate skis over the glowing, glistening snow in front of Skookum Glacier on Thursday morning, I didn't want to ruin the moment by disagreeing with my friend and skiing partner Bob Kaufman about a proposed state income tax.

As he cogently argued in a column published that evening, Kaufman opposes the tax not because he is selfish but because the state wastes and gives away too much money.

He would gladly pay to keep the teachers at the great public school where we got to know each other as supportive parents. But he doesn't want to pay for unneeded public-sector jobs or extravagant employee benefits.

To that I said, "Politics is the art of the possible." I don't believe we can protect those teachers without passing a tax.

Business people like Kaufman look at the inefficiency and irrationality of government and see something that should be fixed before receiving additional investment, as they would do in their own businesses. But politics and business are fundamentally different.

Businesses and ships at sea are dictatorships. They need one hand at the helm to survive hazardous waters.

Democratic governments don't have a helm. The founders made sure no one person could steer the ship and, in doing so, assured our government will always be inefficient and irrational. That's frustrating, but it is better than the more efficient authoritarian alternative.

A democracy can work toward efficiency and rationality only by way of a collective process. Everything we do is ultimately a compromise in a linked social, economic and political system of which the private sector is one part.

As we redesign Alaska's system for a future in which oil doesn't pay the bills, an income tax is an essential part of the structure of incentives to create accountability, unity and, perhaps, more of the efficiency Kaufman craves.

He's right that Alaska state government has been wasteful. I also agree other states work better.

Our recent history tells that story.

The Alaska Permanent Fund could be more than $15 billion larger if not for decades of state spending on megaprojects that were never finished or proved uneconomic. Our health care system is the most expensive in the world without producing results anywhere close to the best in the world.

But waste is only part of our government's story of failure.

Our National Guard devolved into a pit of fraud and sexual abuse. Our prisons established an alarming record of prisoner deaths, high costs, and criminal recidivism. Statistical measures of our schools and university show low graduation rates and uneven academic achievement.

After a generation of extraordinary wealth, Alaska ranks among the worst of the states on an extraordinary number of measures: sexual assault, pre-kindergarten attendance, college matriculation, alcohol abuse, suicide, and the list goes on.

What fundamental difference between Alaska and other states explains this sorry record? The notable difference in our government is that we've lived off oil without political accountability for 40 years. Without paying taxes, we re-elected too many greedy incompetents who made bad decisions.

The resource curse also afflicted other governments blessed by oil. In each case, free money empowers a self-serving political elite and shields society from the creative destruction that comes from competition and challenges. Oil states get fat and lazy.

I'm not talking about Alaska public employee and teacher salaries. They receive less than competitive pay on average (the high cost of employing them comes from their expensive benefits, which enrich health care providers, not employees).

Alaskans don't feel rich because we play a zero-sum game.

We're like a growing family living on a fixed income. Economic development and population increases just divide the pie into ever-smaller slices of oil income of Permanent Fund investment earnings.

In a state with broad-based taxes, economic growth increases tax revenue for the services newcomers use. The linkage aids development, too. Taxation gives the public sector an incentive to support growth in the private sector that produces tax revenue.

An Alaska fiscal solution that relies only on the Permanent Fund would perpetuate government's lack of accountability and assure ever-shrinking slices of the pie for services like schools. Growth would be linked to scarcity.

Or, more likely, the public would continue to demand services and the fund's income earnings account would be depleted. Where would a revolution of efficiency come from to prevent that?

Kaufman's other argument raised the paradox of paying out Permanent Fund dividends while collecting an income tax.

The late Dave Rose, partly responsible for our dividends as the first director of the Permanent Fund, also objected to the state taking part of his income in taxes while sending out checks to people who didn't need the money.

Rose was OK with supporting the poor or rural subsistence communities, but not with taxing the wealthy to give to cash handouts to the middle class.

It's easy to call the wealthy selfish, but I'm influenced by my own perspective, too. Much of my children's college savings came from investing their Permanent Fund dividends. Their futures are significantly brighter because of that money.

Should people like Kaufman or Rose pay for that?

The state government is one pot of money. If they pay in and I take out, they're helping send my kids to college. (I don't buy the argument that you gain ownership in the Permanent Fund by living here for a year.)

As part of our political system, however, the dividend is essential. As intended by Gov. Jay Hammond, the dividend gave the Permanent Fund a political constituency. With no income tax, the dividend is doomed and the fund would be next.

Of all the things we've done with our oil money, the Permanent Fund is the most successful.

The dividend creates a minimum income that is a world model. Income inequality is increasing and communities are disintegrating globally. This idea offers the hope to hold societies together.

Bob Kaufman is a brilliant and generous guy and a great skier. But I respectfully disagree. We need an income tax now.

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(at)alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com or click here to submit via any web browser.

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