Opinions

Real budget battle pits dividend versus taxes

Alaska's present fiscal crisis results from the rarely directly expressed but deeply held antipathy of Senate President Pete Kelly and a small group of his colleagues for the idea of the Permanent Fund dividend.  Under Sen. Kelly's interpretation of core conservatism, the very idea of the so called "dividend," is anathema.  The PFD is a "handout," a "giveaway" of "unearned" money, going to the undeserving.

Make no mistake: The politics of the fiscal crisis is all about a state income tax versus PFD cuts.  It's that simple. ISER's former director Gunnar Knapp gave us, through the Alaska Dispatch News, the comprehensive lowdown on the economics of our future, backed by the work of distinguished professional economists Scott Goldsmith, Matt Berman and others. The PFD is the pearl in Alaska's future.  Common Ground's Cliff Groh has led in emphasizing the urgency of a fiscal solution.

[Walker administration tells Alaskans what they can expect in a state government shutdown]

Ideology is trumping economics. Governor, instead of offering an oversized concession, your team should be working in the aisles of the capitol with legislative allies, line item veto in hand, to pull the few votes off Sen. Kelly's attack on the PFD necessary to a solution protecting the income of the 90 percent.

The "no tax" solution, with its substitute tax on PFD income, has awful effects on the vast majority of Alaskans, including Sen. Kelly's constituents.  The practical issue is who pays and how much. Start with the income tax.

"Income tax" has been vested with an evil odor by high payers, but the impact of a state income tax on 90 percent of Alaskans is mild and nowhere near the devastating and unfair impact of an equivalent cut in the PFD. In Alaska, a state income tax, cushioned by the PFD, will take its cut from people who can readily afford it. Somewhere around 10 percent of Alaska families earn over $100,000 a year. Alaska needs to focus on the needs of the remaining 90 percent.

Maybe if you are near the bottom of that top 10 percent, you pay $20,000 in federal income taxes.  Married with one kid, in the good year you clear $6,000 in PFDS.  Under a 15 percent state income tax regime, you pay $3,000, deducting it under your federal tax. What's the better deal? Figure it out on your own account. For everyone under that top 10 percent of population the income tax is easily the better choice.

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Now consider cutting the PFD as an alternative to an income tax. The PFD cut takes an equal amount from each Alaskan.  That's not an equal amount from each family.  If you are married, that's a double bite.  If you have kids, a PFD cut takes a noticeable chunk of total family income.  If your earnings rank you in the lower half of Alaska families, it will likely take all your disposable income.

The PFD is a family allowance, and a helping hand for those earning near minimum wages or down on their luck.  It is essential income to rural subsistence folks and almost all young people with kids. Anyone with relatives living in Bush Alaska or associated with the Alaska military is crazy to support any legislator preferring a PFD cut.

What to do?  Don't go along with Sen. Kelly and his clique. Several are with him because he controls the chairmanships but will drop out if they believe their seats are in jeopardy.  Don't go along with Gov. Walker or any deep compromisers.

[Gov. Walker's 'compromise' moves state lawmakers no closer to a budget solution]

Hang tough and show your support for defenders of the PFD. Every year, a compromise on the PFD will be followed by another compromise until the PFD is gone or is just a candy bar reminder of the days before the savings of all the people were handed out to give a free ride to those already made rich by Alaska.

In a way, one can admire Sen. Kelly's stand on principle because there is no other issue in which his stand is in such stark contrast with the interest of 90 percent of his constituents, if not his financial supporters.

The citizen's job is to let Sen. Kelly and the cohort supporting him know that there is an election coming up. Promise to make your voice heard in favor of replacing any legislator who is trading away the PFD to avoid an income tax. Call your legislator or write now.

John Havelock served as attorney general to Gov. Bill Egan and on Gov. Jay Hammond's Growth Policy Council before his service as founder of the University of Alaska justice programs.

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. 

John Havelock

John Havelock is an Anchorage attorney and university scholar.

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