Notes from the Alaska Fiscal Cliff: Let’s be absolutely clear …
Let’s start by being absolutely clear about three things.
First, according to ISER’s undisputed economic analysis, cutting the PFD has the “largest adverse impact” on the overall Alaska economy, is “by far the costliest for Alaska families” and, because it draws money only from Alaskans (as opposed to alternatives which result in contributions by non-residents) takes the most money out of the Alaska private sector of all of the so-called “new revenue” options.
Second, compared to a flat tax, the only segment of the Alaska population that benefits from PFD cuts are the Top 20%, which pay a slightly smaller portion of their income under a PFD cut (1.81%) than they would under a flat tax (2.65%). The Remaining 80% of Alaska families are worse off under PFD cuts than a flat tax. (See chart below.)
Third, contrary to what some claim, continuing to pay a PFD while implementing a flat tax does not mean that the income from the flat tax is being used to pay the PFD. The PFD always has and always will be paid from revenues earned off the Permanent Fund, period. A flat tax will go only to funding the costs of government. Those who suggest otherwise are using a fake argument to divert attention from the real facts.
With those three things in mind, here is what is really happening in the PFD debate.
In order to avoid paying their proportionate share of the cost of government (which would happen under a flat tax), those in the Top 20% are making up arguments to justify cutting the PFD instead. The goal of those efforts is to shift the cost of government disproportionately to middle and lower income Alaskans so that upper income Alaskans continue largely to have a free ride.
To achieve that free ride, those in the Top 20% are willing to take the very step that has the
- “Largest adverse impact” on the overall Alaska economy;
- Is “by far the costliest for Alaska families;”and
- Takes the most money out of the Alaska private sector
of all of the various new revenue options.
In essence, they are willing to undermine the overall Alaska economy and Alaska families just so that they are able to pay less than their proportionate share of the costs of Alaska government.
There is a better way — a flat tax under which all Alaskans pay an equal, proportionate share of the cost of government.
We previously have described how we would construct that approach. “ICYMI: Designing a Flat Tax” (Sept. 2017).
Under that approach ALL Alaskans — including even those in the lower income brackets — would pay a proportionate share of the costs of government. No income bracket would pay more proportionately than any other.
But those in the Top 20% apparently aren’t satisfied even with that; they want middle and lower income Alaskans to pay more, so that the Top 20% can pay less and yet, continue to have the benefit of largely free government services.
No wonder we can’t get spending under control.
Governor Hammond had this right in Diapering the Devil: “the best therapy for containing malignant government growth is a diet forcing politicians to spend no more than that for which they are willing to tax.”
By avoiding paying a proportionate share of the costs of government, the Top 20% is trying to have their cake (continued government services) and eat it too (without paying for it).
If those in the Top 20% aren’t affected by those costs, they don’t have an incentive to help push to control them. Indeed, because many are beneficiaries of continued government spending, they have a positive incentive to keep spending.
In light of that, we have come largely to believe that their continued talk about “spending cuts” is just another diversionary tactic to keep some at bay while they continue pursuing their plan for “new revenues” through PFD cuts. “Are Alaskans being played” (Oct. 2017).
Want to do something about it?
If you agree that we should be going in a different direction, we ask that you consider the approach taken in the Alaskans for Sustainable Budgets Fiscal Plan and, if you agree, recommend to your friends and representatives that they look into it as well.
As outlined in Diapering the Devil, Governor Hammond’s original vision for the Permanent Fund was simple and straightforward:
I wanted to transform oil wells pumping oil for a finite period into money wells pumping money for infinity. …[Once that was in place,] each year one-half of the account’s earnings would be dispersed among Alaska residents …. The other half of the earnings could be used for essential government services.
Building on that starting point, the Alaskans for Sustainable Budgets Fiscal Plan develops a long-term, sustainable budget approach that spreads the need for new revenues proportionately across all income brackets, and creates an equal and significant incentive for all Alaskans to restrain and reduce the costs of government.
Unless we all are in this together, some Alaskans will continue to seek advantages over others. It doesn’t appear to bother those that are seeking those advantages that their approach undermines the overall economy, Alaska families and costs the Alaska private sector more than other alternatives. Their only concern is that it benefits them.
Our plan to avoid such a selfish — and harmful — outcome is here: “Notes from the Alaska Fiscal Cliff: Our Proposed Fiscal Solution” (Nov. 2017). Read it and if you agree with us, let your representatives know you support the plan, then share and forward it to friends and ask them to do the same.
This battle is about the future of the overall Alaska economy and Alaska families. It’s too important to remain on the sidelines.
Originally published at bgkeithley.blogspot.com on April 1, 2018.