Adapted from The Midnight Sun Memo, a newsletter project from your humble Midnight Sun editor. For everyone who’s been asking about keeping up via email or how to support the work we’ve been doing here, we finally have an answer in this nifty newsletter. Sign up now!
That’s been the great question underlying Alaska’s ongoing budgetary woes and inability to rally the political capital into action to find a durable solution to the annual fight. Is it the PFD? The oil industry? Is it people drawing a paycheck in Alaska? Or should it be people buying stuff in Alaska? Should it be state employees who pay with the elimination of their jobs?
So far, the state has leaned heavily on the first and last options as cuts to state services and the dividend have proved to be the path of least resistance since oil revenue fell off a cliff in the mid-2010s. But now as continues cuts to government and continued cuts to the dividend seem to no longer be the easy course of action, legislators are turning to the question of “Who pays?”
There’s talk of income taxes, sales taxes, hikes to oil taxes and… um… gambling. Each one of those decisions contain different levers that will affect parts of Alaska and groups of Alaskans differently. All that is worth a deeper dive at a later date, but I wanted to highlight what former state Sen. Rick Halford told the House Judiciary Committee on Friday when going over the history of the Alaska Permanent Fund, the dividend, the oil booms and the repeal of Alaska’s income tax in 1980.
“If you go back to the starting point of it all, how big was the dividend to who?” Halford asked the committee. “You look at the repeal of the state income tax and it probably represented a $100,000 a year dividend to the top 1,000 taxpayers in the state of Alaska. … You had to look at it in the context of everything that was going on. We were spending huge amounts on housing subsidies that were worth in some cases $15,000 to $20,000 a year for people who could afford to build very, very expensive houses. The income tax repeal had a huge differential effect depending on your income.”
Counting the income “saved” with the elimination of the income tax makes for an interesting way to consider how the benefits of Alaska’s oil boom were spread. Yes, the dividend and the state services that were funded with oil taxes and royalties have broadly benefitted Alaskans and are credited with some social benefits, but the repeal of the income tax has been even more significant for the wealthy and very wealthy.
It also puts into finer relief just what’s at stake as the state considers that question of “who pays?” Some Republicans have continued to push plans that call for dividends in the neighborhood of $500 in order avoid any and all tax hikes while others have said the words “sales tax.” Democrats, meanwhile, have generally pushed for a more progressive approach through an income tax. And, sure, cuts to the dividend are effectively the most regressive form of taxation.
So, what should happen? Halford said it’s up to today’s legislators to decide. While looking back at the history is informative, he said, the course of the Alaska Permanent Fund has never been set in stone and has never been unanimous either. But whatever it is, it should be equitable, he said.
“It needs to be something that deals with an equitable share. Power, position, age, longevity. All these things help the rich get richer and the poor get poorer,” he said. “We tried to short-circuit that as much as possible.”