We’re all familiar with the slogan, “You can’t cut your way to prosperity.” Its less disputable corollary is rarely heard: You can cut your way to continued decline. This thought comes from Michele Anderson, who in her recent book, “Re-Imagining Discarded America,” wrote about poor places struggling to reverse their long downward spiral.
Alaska isn’t poor like the towns Anderson chronicled — at least not yet. But we seem to be. heading that way as fast as we can. Alaska’s public disinvestment over the past seven years is astonishing. We’ve cut public services right and left, even as we blew through billions of dollars of savings. But like Anderson’s places, the cuts didn’t create more efficiencies; they just cut services.
Alaska has cut public health, ferries, road maintenance, troopers, university, schools (taking inflation into account): everything — except prisons. The state now spends $1.29 locking people up for every dollar spent on higher education. That’s 50% more than red-state peers Montana and Idaho. Deep red Wyoming spends more than twice as much. No wonder our young people are leaving.
Leaders in Anderson’s book eventually realized that to climb out of their poverty trap, they had to start investing in people. That is much harder to do with a depleted tax base. Many writers on these pages have also called for a long-delayed jump in spending on K-12 public schools, too. Most who considered how to pay for the increase, like Rep. Zack Fields, said we should cut the Permanent Fund dividend.
After 40 years, the dividend is deeply embedded in the economy. Many Alaskans rely on it to make ends meet. Do you think employers will give workers a 10% pay increase to offset a $1,000 cut in the dividend?
Let’s be honest. A cut in the PFD is a tax — the most regressive tax ever proposed. A $1,000 cut will push thousands of Alaska families below the poverty line. It will increase homelessness and food insecurity. A low-income family loses $1,000 per person, while a high-income family loses about $700 per person, because their federal income taxes drop.
Progressives like Fields who advocate for using PFD cuts to pay for public spending should think again. It is possible to preserve a “statutory” PFD and increase education funding without draining the Permanent Fund. What if our legislators and governor mustered the courage to ask us to pay taxes, and we distributed the statutory PFD as a refundable tax credit? The feds already do something like this with the child tax credit.
Here’s how it would work: We start paying a state income tax, perhaps a flat percentage — say 15%, for example — of our federal income tax liability. The PFD would be paid as a credit against the state taxes owed. If the PFD exceeded our individual tax liability, the state would issue us a check for the difference. Alaskans earning too little to pay income taxes get the whole PFD. Nonresidents would pay the state a lot more, because they would not get the tax credit. Higher-income Alaskans would come out ahead, too. A PFD tax credit isn’t taxable income, so the feds couldn’t tax it. One complication — actually a benefit for Alaskans — is that the PFD Division would have to calculate and pay out the dividend much earlier in the year, along with income tax refunds.
Don’t like this idea? OK, what is your plan? How does it compare to this proposal? How fair is it? How much do nonresidents pay relative to residents? Yes, there would be details to work out, but that’s true of any plan.
It’s time for our elected officials to lead and ask us to pay taxes. Putting off the tough decisions just digs us deeper into our hole of decline.
Matthew Berman is Professor of Economics at the UAA Institute of Social and Economic Research (ISER). The views expressed are his own, and do not represent the views of ISER or the University of Alaska Anchorage.
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