Take any of the other 49 states. They all have an established stream of revenue that pays for public services. Any one of them could decide to take a portion of that stream and, instead of funding public services, just start sending out checks to everyone. Any of the states could do that, and none of them do. No one in any of those states suggests that not issuing those checks amounts to a tax. No one does, because it would be laughable. Yet in Alaska, recent commentaries in this paper have argued exactly that.
The argument is that because Permanent Fund dividend cuts reduce cash payments, the reduction in cash is the same as if a tax were paid.
So why does this argument not appear anywhere else? The other 49 states more or less balance their public service needs with the amount of revenue coming in. The public expenditures cover education, roads, public safety, etc. They have figured out that these services, and those expenditures, are necessary for maximizing the public welfare. To divert money from these services to issue checks to everyone would diminish those services, to the detriment of public welfare.
This is exactly the situation in Alaska. Before 2016, fund earnings were distinct from and not needed for services. But now, subsequent to lower oil prices and oil production, the state has a given stream of revenue, including Permanent Fund earnings, that is needed to pay for essential public services. It is like every other state. The only difference is that in Alaska, there was an historic entitlement program that was affordable between 1982 and 2015, but is not now.
Reductions in public services from reduced expenditures, and the ensuing reduction in public welfare, is a very real cost to all residents. A reduced dividend is no more of a metaphorical tax increase than the reduced services to pay for the dividend are.
The poverty rate in Alaska is currently 11%. When you look at the portion of the dividend that goes to the other 89%, and how that could go toward services for the lower-income instead, the reduced services are more of a metaphorical tax increase than the reduced dividend is. In fact, the dividend acts like a very regressive tax.
Poverty has been called a relentless piling on of problems: pain, disease, crime, instability, eviction, unemployment, insecurity, fear, homelessness, incarceration, shame, a diminished life. The increased income from a good education or a job-training program, alcohol and drug rehabilitation, or Medicaid assistance to pay a doctor’s bill — these all dwarf the value of a dividend check.
There is no question that cash payments to low-income people reduce poverty. But reducing services to low-income people in order to make cash payments to others increases poverty.
In all other 49 states and all other oil sovereign wealth funds around the world, there are no dividends. And no one there argues that not paying a dividend is a tax. The tax analogy is a metaphor. There is no tax. Instead, there is a very real reduction in prosperity that is a direct result of an undiscriminating government handout.
Roger Marks is an economist in private practice in Anchorage. From 1983-2008, he was an economist with the state of Alaska Department of Revenue Tax Division.
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