Legislature needs to look at taxes, not just Permanent Fund Dividend cuts

It’s fine for the Legislature to create a “Permanent Fund Working Group” to deal with the ever-present question of how the state’s largest source of income is to be managed.

But there’s a problem with the marching orders given to the eight Republican and Democratic legislators chosen by the House and Senate—the state can’t decide the future of the Permanent Fund while ignoring the tax alternatives. These issues can’t be separated.

“It’s my hope that my colleagues and I can recommend responsible ways to use permanent fund earnings for the benefit of all Alaskans, with the goal of protecting the entire permanent fund for now and for generations to come,” said Sen. Click Bishop, a co-chairman of the group.

The sentiment is a good one. But the best way to protect the fund for now and generations to come is to include additional taxes. There is a great reluctance on the part of legislators and other participants in the political system to acknowledge this.

We have a surplus of strident pleas for legislators to compromise and show leadership, but there are few voices in Alaska calling for new and higher taxes, even though Alaska would still have the lowest rates in the country.

This bipartisan group is ideally suited to recognize the overall challenge facing the state and deliver the bad news to the rest of the Legislature and Alaskans about the need for unpopular decisions.

The only way of selling dividend cuts is to spread the pain by including taxes—both an income tax and higher taxes on the oil industry and perhaps a state sales tax.

This has been clear for years, but the real discussion can’t take place when the governor is sticking to a fiscal fantasy of promises for larger dividends and no taxes, while offering budget cuts that almost no one can stomach. Or when legislators refuse to budge from positions that range from a refusal to look at taxes as long as any dividend survives, to a knee-jerk belief that higher oil taxes will solve everything. Add to that the myth that the dividend is all that counts and you have a quagmire and another potential government shutdown.

The resolution establishing the working group said the “Alaska State Legislature recognizes that, in finding a long-term fiscal solution for the state, the resolution of issues surrounding the future use of the earnings of the Alaska permanent fund is paramount.”

That’s close to being correct. What is paramount is deciding how the future use of the earnings fits into a reasonable fiscal plan with taxes that shows a way to pay for state and local government services.

Dermot Cole6 Comments