The silence from Alaska's policymakers on revenues has been deafening. Elected officials know they can't cut their way out of the current fiscal mess, but the only public conversation on our fiscal crisis has been about how far expenses can be reduced.
OK, making painful budget cuts should create more public willingness to accept new taxes, and certainly reducing spending is part of the solution, but the outlook for an oil price rebound in the near future looks bleaker every week. Meanwhile, our $3.5 billion deficit threatens to be even larger next year, raising the specter of wiping out all of our saving accounts (except the Alaska Permanent Fund) before new revenues could begin flowing into the state treasury ... if there is the political will to enact new taxes.
It is time to open an honest public dialogue on revenues. After all, nothing is likely to happen with major changes in taxation without intensive public involvement, and certainly using some of the assets of the Permanent Fund will require a well-reasoned public debate.
Alaska has proven to be extremely shortsighted when it comes to setting tax rates and policies. The current deficit in oil production tax revenues is a glaring example, as was repealing the personal income tax instead of suspending it with a trigger to come back when oil revenues dropped to a certain level. Here is a list of taxation issues that policymakers might start with:
Oil taxes
The boldest thing any elected official has had to say about revenues is Gov. Walker's statements that the last incarnation of oil production taxes needs to be changed to eliminate deficits in the future. Just imagine the size of those deficits if ANWR were opened to drilling at current oil prices. The majors would be madly spending on new production and Alaska would be in the poorhouse because of our ill-conceived systems of production incentives.
Why should new wells in legacy fields get production credits? The truth is that giant fields like Prudhoe will be sucked dry, credits or no credits. Our entire system of production incentives should be closely examined.
Corporate taxes
Alaska statutes have an enormous loophole in corporate taxes that allows very profitable businesses, including one midsize oil company, from paying anything. "S" corporations, which are closely-held entities with few shares, are exempt from corporate taxes under current state law. In addition to the oil company, doctors, lawyers and many other very profitable businesses can escape taxes that other similar businesses with broader ownership have to pay.
What is fair about that? Just capturing the lost taxes from the one oil company could mean hundreds of millions of dollars annually.
Personal income taxes
Alaska needs to gaze far into the future when looking at a more stable income stream. We are the only state without a statewide income or sales tax. Much or most of our workforce is comprised of nonresidents, who enjoy the infrastructure and services our state and communities provide, but give little back in terms of taxes. An income tax is the best way for residents to get a return on the investments the state has provided. A statewide sales tax would be extremely regressive, and would cause serious problems for the many communities that rely upon local sales taxes to support local government. A sales tax would not extract much from nonresident workers who spend a relatively small percentage of their wages in Alaska.
Apart from getting a piece of nonresident wages flowing out of the state, an income tax also would require Alaskans to contribute their fair share. The majority of Alaskans currently receive more in Permanent Fund dividends than they contribute to support the cost of services they receive from state government. To paraphrase the late Gov. Jay Hammond, we too need to pay our own way.
Permanent Fund
Most Alaskans don't remember that the fund was created to help support the cost of government after the oil wealth from Prudhoe Bay had disappeared. The dividend program was a popular offshoot, and, as Hammond predicted, it has been vital in preventing the Legislature from blowing all of our oil wealth on frivolous capital projects. When the constitutional amendment was approved, it provided for some of the annual funds to flow directly into the state's general fund, but the Legislature directed the Permanent Fund Corp. to manage these assets. This so-called "earnings reserve" account currently has $7.9 billion in it, and the Legislature can transfer these funds with a simple majority vote. That could cover two years of our current deficit, or better yet, how about leaving the funds where they are and just spend the earnings each year? Dividends would not be affected, but state government could earn a sizable injection of annual revenue, allowing for lower individual income tax rates.
And, how about capping dividends at a certain amount, and pushing the annual difference into a new Permanent Fund account? If the annual dividend was $1,800, and a cap was set at $1,300, and there were 600,000 qualified applicants, the recovery for the endowment would be $300 million and everyone would still get a sizable PFD.
Motor fuel taxes
Like most Alaskans, I enjoy paying fewer taxes at the gas pump, but does it make sense for us to pay less than half of any other state? Alaska has the lowest -- by far -- tax rate for auto, marine and aviation fuels in the country.
Mining taxes
Unlike oil companies, miners contribute little to state coffers. While they do provide well-paying jobs and pay property taxes to some local communities, production taxes are minimal. Rep. Paul Seaton, R-Homer, has worked for years on legislation to adjust the tax rates but has made little progress to date. Let's hope that changes with Alaska's new fiscal outlook.
The reality ...
The reality is that we couldn't come close to closing the current fiscal gap even if we shut down every current function of state government. If we fired every state employee, we'd still be operating at a huge deficit.
Yes, we are experiencing a fiscal crisis, but there is a path to more stable, long-term financial stability, if there is political will. That will mean that individual Alaskans, and nonresidents, will again have to pay something for the services they are provided.
When I began working as a teenager, I paid state income taxes on my wages and a statewide school flat-tax, and I am willing to do the same as I reach the declining years of my earnings. I hope other Alaskans are willing to do the same in the future, as it is the only hope for a stable economy for our state.
One final note on why to start looking seriously at revenues now is the tremendous lag between legislative debate and action, and when new tax revenues would actually appear in the treasury -- about two years.
Rodger Painter has closely followed state government for the past 40 years as a reporter, legislative staffer, lobbyist, owner/operator of small businesses and citizen activist. His roots in Alaska go back many generations.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com.