Why Dunleavy’s big-PFD math just doesn’t add up

Mike Dunleavy

“Have you heard about Gov. Dunleavy’s PFD plan?” the governor’s Facebook post asked on Aug. 12. A simple graphic showed arrows going from a simple line-drawing family down two paths: one labeled “Gov. Dunleavy’s PFD Plan,” in which the line-drawing family received $2,350 apiece thanks to their constitutionally enshrined Permanent Fund dividend, and another labeled “The Legislature’s PFD Plan,” in which the family received $500 apiece. If this is the “education” about his plan that the governor is planning to provide Alaskans with $250,000 in state funds, it’s no wonder the state’s standardized-test scores remain frustratingly low.

Notably absent from the governor’s simplistic PFD graphic: any explanation of where the money is supposed to come from. You may remember, after all, that the reason the Legislature’s dividend is so low is that $1,100 was as high a dividend as the state could legally pay under the 2018 percent-of-market-value statute — and then Gov. Dunleavy’s allies in the Legislature torpedoed a vote to fully fund that dividend, reducing it to $525, which the governor himself vetoed to $0. At this point, unless the Legislature steps in to rescue the PFD, the governor and his allies will have erased it entirely for the year, in an effort to make it twice as large. And the reason that political hardball is happening in the first place is that the state simply doesn’t have enough funds to pay for a big dividend and state services without raiding the Permanent Fund unsustainably or raising revenue — which, in layman’s terms, means taxes.

The governor doesn’t like talking about taxes; it’s the sort of thing that doesn’t play well with his voter base, whom he told before his election that they could have their cake and eat it, too — in the form of all the services Alaskans have come to expect, plus a big PFD and even back payments. When it turns out that you’re going to be funding your own PFD by being taxed every time you buy groceries, it’s a less attractive prospect than a no-strings-attached check that plops into your bank account every October.

So, knowing it wouldn’t play well among Alaskans, Gov. Dunleavy rolled out his new sales tax plan in the form of a legislative briefing by Revenue Commissioner Lucinda Mahoney. “It’s my understanding that the governor would support a sales tax,” Mahoney told the members of the Fiscal Policy Working Group, a 16-member subset of legislators tasked with researching a sustainable budget solution. Dunleavy’s preference, per Mahoney, is that a statewide sales tax be as broad as possible, like that of South Dakota or Wyoming. That means few exceptions — South Dakota’s tax, for instance, is collected on groceries as well as durable goods, and Alaska’s sales tax would have to be substantial to fill the revenue hole wrought by $2,300 PFDs.

But there’s a very big problem with collecting such a tax in order to pay big PFDs: Effectively, Alaskans would be paying an extra fee every time they spent money throughout the year — on food, on furniture, on appliances, on vehicles — only to have it returned to them in the fall, or whenever PFD checks are issued. Given that the sales tax realistically wouldn’t pay for the full amount of Alaskans’ dividends, all of the money collected would simply be traveling in a loop from Alaskans to the government and back, with no multiplier effect or benefit to anyone except for the newly formed bureaucracy in charge of administering the tax itself. And if the tax was collected with as few exemptions as possible, the benefit to Alaska’s poorest families — whom the governor has said are at the heart of his love for big PFDs — would be somewhere between minimal and nonexistent, as essentially all of their purchases would be taxed, eating away the value of those big dividends throughout the year. Other than creating jobs for tax collectors, the only reason why the plan holds any appeal to the governor must be that it would allow him to claim victory on his signature campaign promise — even if Alaskans themselves are the ones who pay for it.

Even if the governor’s “education” effort doesn’t include the caveat that Alaskans will be paying for those big PFDs themselves, you can bet that word will get out, and when it does, the plan is unlikely to be popular. There’s a reason, after all, that Alaskans surveyed earlier this summer fell out of love with Dunleavy’s plan to put the 1982 PFD formula in the constitution when they learned it would necessitate broad-based taxes that they themselves would have to pay. It’s not hard to understand that when you’re paying money just so you can get it back later, you’re not really coming out ahead — the money’s just changing pockets, regardless of who takes credit for it.

Anchorage Daily News editorial board

Editorial opinions are by the Anchorage Daily News editorial board, which welcomes responses from readers. Board members are ADN President Ryan Binkley, Publisher Andy Pennington and Opinion Editor Tom Hewitt. The board operates independently from the ADN newsroom. To submit a letter or longer commentary for consideration, email commentary@adn.com.