Scott Hawkins (Commentary, June 8) argues that we don't need an income tax as part of our strategy to close the state budget deficit. This is contrary to what he argued a year ago:
Any reasonably balanced solution will require these core elements:
• Deep budget cuts. …
• Broad-based taxes. We don't necessarily need both an income and a sales tax, but at least one of the two is needed. …
• Use of some Permanent Fund earnings for general government.
• Reduced Permanent Fund dividend. To preserve it we must be less greedy. Dropping from a dividend of over $2,000 to something in the $1,000 to $1,250 range seems reasonable. …
Everything he said a year ago aligns with the current House majority plan. Except the House majority notes that we have already cut the budget 44 percent in four years, and further cuts, particularly to education, are a bad investment. Instead, the House majority proposes to finish balancing the budget by reducing the tax credits we pay to the oil companies.
[Save our state: Realism and compromise to keys to Alaska's fiscal fix]
As president of Advanced Supply Chain International, Scott Hawkins works for the oil companies. His backers include the Koch Brothers and the other Outside donors who fund his political action groups ProsperityAlaska and The Accountability Project. He represents big oil and other special interests, not average Alaskans or the broader public interest. In 2012 he opposed the expansion to Medicaid, which now benefits 27,000 Alaskans.
Hawkins' current argument doesn't measure up to the analysis by economists at the Institute for Social and Economic Research who, with their state-of-the-art model of the Alaska economy, estimate that, dollar for dollar, budget cuts — and PFD cuts — hurt the Alaska economy more than income taxes. There are three reasons this is so:
• First, over 20 percent of our workforce is nonresidents; they would pay an estimated $80 million in income taxes to help support the roads, airports and other state services that they use. By contrast, 100 percent of PFD cuts take money out of Alaskans' pockets. Similarly, 100 percent of the cuts in the state payroll and the burden of state services cuts would fall on residents.
• Second, progressive taxes have a higher economic multiplier than regressive taxes. That is because every dollar left in the pockets of lower income households gets spent on consumer goods and recirculates in the local economy, while a greater proportion of higher income budgets is saved or spent on airplane tickets or luxury goods that have a low in-state multiplier. In the House bill, 35 to 40 percent of the total income tax receipts would be paid by households with incomes over $250,000, while PFD cuts fall most heavily on low income households and families with children.
• Third, income taxes paid to the state are tax deductible against the federal income tax; thus higher income households that itemize their federal taxes get a 25 to 35 percent offset for their state tax liability.
[Focus on Alaska budget misses the point]
He is wrong on two other points as well. He thinks new oil finds on the North Slope will come online in five to seven years and will increase state revenue by 40 percent. Not true. Even if new fields were to increase oil production 40 percent — highly speculative at best! — it would not increase state revenues by anywhere near that amount, since the production tax is based on the net value of the oil — market price minus production and transportation costs — and the newer, higher cost fields pay the state substantially less per barrel than Prudhoe Bay and Kuparuk, which are declining. Some marginal fields actually pay no tax. The Alaska Department of Revenue forecasts a 22 percent increase in unrestricted oil revenues over seven years.
Second, Hawkins says our state spends more per capita than any other state, so ipso-facto our state government must be bloated. Well, duh, of course we spend more per capita than other states! Hasn't he noticed that the cost of living is higher here? Doesn't he know that our geography is two and a half times larger than Texas, and most of it is roadless? Didn't he learn in school about economies of scale, whereby with fixed overhead costs, service delivery to a smaller population is always more expensive per head? Let him try to argue instead that the quality of our roads and bridges, law enforcement, justice, education and other state services are more than what the citizens of other states receive!
Don't be fooled by Hawkins' special-interest rhetoric: Insist that your state senators get on board with a comprehensive plan that closes the budget deficit and serves all Alaskans.
Sharman Haley is an economist, and lived in Alaska back when we all paid income taxes. She says it wasn't so bad.
The views expressed here are the writer's and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com.