OPINION: The PFD is primarily a political problem

Brad Keithley had a great commentary in the ADN on Oct. 2, showing how the PFD is a key resource for lower-income Alaskans, and that eliminating PFDs in order to provide spendable revenue for the state would constitute a most regressive tax, hitting the worst off among us the hardest. His arguments are persuasive and the experts he cited were compelling. What was missing was the political component of the problem.

In order to deal with the fiscal problem faced by the state, new revenue must be found. Further cuts to spending are untenable, as the state is already suffering serious consequences, especially in education, due to cuts that have gone too far. Apart from using Permanent Fund earnings, eliminating the PFD, really there are only increased oil taxes or personal taxes — income tax or sales tax. A sales tax hits the worse-off regressively also, so it would resemble PFD cuts in its impact. Most Alaskans could support increased oil taxes, but the massive spending by oil companies and the fecklessness of the Legislature mean it isn’t going to happen. Not that we shouldn’t try.

What is left is the challenge of creating a tax, like an income tax, that will hit most income earners on one hand, while “handing out” money to everyone via the PFD. Since the constitution requires all revenue — Permanent Fund and tax revenue — to be appropriated from the general fund, the PFD and taxes go into and come out of the same purse. A $1,000 PFD would cost about $700 million; while a “10% of federal” income tax would bring in about $750 million. As Mr. Keithley pointed out, the PFD is a small proportion of the income of income-earners, while an income tax would hit them harder. Politically, this structure is likely to be viewed by income-earning Alaskans as a transfer of cash from them to non- or lower-earners.

The political argument is not so difficult if tax revenue is used for public obligations — schools, road, infrastructure, health care, universities. These benefit everyone and are widely accepted as obligations of a state. In fact, they benefit lower-income people disproportionately more, in many cases — Medicaid eligibility is worth more than a $1,000 PFD per year to a low-income person, for example. An analysis of the impact of PFD cuts to low-income people should include an analysis of the offsetting benefits of increased public services that the PFD money would provide if spent by the state. Of course, this is only fair if the PFD cuts result in additional spending, not just substituting PFD money for tax relief to oil companies.

As an income-earning Alaskan, I personally would be fine with paying an income tax and continuing the PFD, but I don’t think I am in the majority. To make it happen takes convincing the majority that taxing them and providing a PFD are the right thing to do. Since the argument seems to be that this system would be better or fairer for the poor, and not necessarily better economically for the majority, the argument comes down to moral suasion. That is a poor foundation for a long-term economic strategy, and that is why I am doubtful that the PFD is going to survive our fiscal difficulty as a state. The only way I can see it surviving is if we enact substantially increased oil taxes — which are long overdue — and continue to avoid taxing Alaskans directly. I think the political message to Alaskans should be: Tax the oil companies, or you will lose the PFD and have to pay an income tax. The choice is really that simple.

Harold Johnston, M.D., is a lifelong Alaskan who practiced family medicine in Anchorage for 29 years, and led programs at the Anchorage Neighborhood Health Center, the Alaska Family Medicine Residency and Providence Medical Group, before retiring in 2018. He has a degree in philosophy from Whitman College and an M.D. from the University of Washington WWAMI program, where he is currently a Professor of Family Medicine, Emeritus.

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