In a recent editorial, the Anchorage Daily News editorial board argued that Permanent Fund dividends are government spending and that they should be cut so the funds can be diverted instead to cover other spending, “like education and public safety.”
But that’s not what PFD cuts are. Virtually every economist that has looked closely at them over the past several years, including researchers at the University of Alaska Anchorage’s Institute of Social and Economic Research (ISER) and analysts at the national Institute on Taxation and Economic Policy (ITEP), has viewed PFD cuts as a source of government revenue, like taxes. Indeed, earlier this year, Matthew Berman, a senior Harvard and Yale-trained Professor of Economics at ISER, who has been on faculty there since the early 1980s, called them exactly that in an opinion piece published on the ADN’s own pages. “Let’s be honest,” he wrote. “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.”
The difference is a huge one. When evaluating whether to make cuts in the PFD, the editorial board wants readers to compare them to other spending.
But Berman and others, instead, compare them to other sources of revenue, such as other taxes. And when economists have looked at them in that way, they have found PFD cuts to be the worst possible alternative. In a 2016 study prepared for the administration of Gov. Bill Walker, researchers at ISER concluded that, compared to other revenue options, “the impact of the PFD cut … has the largest adverse impact on the economy per dollar of revenues raised.”
Follow-up ISER studies in 2016 and 2017 concluded that, again, compared to alternatives, “a cut in PFDs would be by far the costliest measure for Alaska families,” and, unlike any other revenue approach, “reducing the PFD by $1,000 will likely increase the number of Alaskans below the poverty line by 12,000-15,000 (2% of Alaskans).”
And in 2017, as then-ADN reporter Nat Herz wrote on its pages, researchers at ITEP concluded: “For (80% of) Alaskans, an income tax would hurt less than a PFD cut.”
So, why do some nonetheless push PFD cuts?
In my view, there’s one simple explanation. While PFD cuts have the “largest adverse impact” on the Alaska economy, are the “costliest measure for (80% of) Alaska families,” and will “increase the number of Alaskans below the poverty line” by far more than any other option, there are some who benefit greatly from disproportionately concentrating the state’s revenue burden on middle and lower-income Alaska families in the way PFD cuts do.
For example, as the ITEP study found, while using PFD cuts reduces the income of those in the middle-income bracket by 2.5% and those in the lowest-income bracket by more than 7% per $500 million in cuts, it reduces the income of those in the top 20% income bracket by less than 1%, and those in the top 5% income bracket by less than one-half of a percent.
Because PFD cuts only affect Alaska families, non-residents contribute nothing — or, as former Gov. Jay Hammond once put it, unlike in every other state in the nation, they escape “scot-free.” And as long as the Legislature can use PFD cuts to raise revenues, there is no need to look at needed modifications in oil taxes seriously.
Yes, the top 20% and non-residents would contribute more to the costs of government under other, more broad-based alternatives, but as the ISER and ITEP studies have made clear, even then, they would still contribute much less than middle and lower-income Alaska families are being required to contribute now using PFD cuts.
I agree with the ADN editorial board that the Legislature needs to resolve Alaska’s fiscal situation. But the action they need to take is to adopt broad-based revenue alternatives that would result in all segments contributing relatively modest amounts, not to lock in a hugely regressive PFD cut — and with it, its large and hugely adverse impacts on the Alaska economy and families — in perpetuity.
Brad Keithley is the managing director of Alaskans for Sustainable Budgets. As part of that project, he both writes a weekly column for the Alaska Landmine and, together with talk radio host Michael Dukes, records and publishes a weekly podcast on Alaska fiscal issues.
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