Dunleavy tax plan will be jeered, not cheered

The House Finance Committee is to hold its first hearings Thursday at 9 a.m. and 5:30 p.m. on a major element of Gov. Mike Dunleavy’s so-called fiscal plan. It’s not going to be popular. It will be picked apart from all directions. That comes with the territory.

The bill would establish a temporary state sales tax and temporarily cut oil taxes when prices are low. It would permanently eliminate corporate income taxes in five years, which would cost the state about a half-billion dollars a year. It includes a 15-cent per barrel charge on oil flow through the pipeline.

This is all in House Bill 284, which requires this 58-slide presentation to explain the contents.

At the first hearing legislators will hear from the Alaska Municipal League about why a sales tax should remain the revenue source for local governments. They would prefer that the state implement an income tax instead.

Dozens of communities that rely on local sales taxes, many of them dependent on fishing and tourism, would be hard hit under the Dunleavy plan. The fight over exemptions would last weeks or months.

“The composition of this legislation doesn’t address the revenue shortfall if localities are being asked to give up local taxation so that corporate income tax goes away,” the league says.

In its randomness, the Dunleavy recipe for future state finances reminds me of a delicacy I’ve heard about enjoyed by a group of Minneapolis college friends in the 1970s—hambadogbeanbrosia.

The gourmet meal featured a pound of hamburger, a package of hot dogs—thinly sliced—a 32-ounce can of baked beans, a block of of Velveeta, along with whatever else was in the freezer and pantry, seasoned with mustard and ketchup.

One of the descendants of the original connoisseurs of hambadogbeanbrosia suggests the concoction was ideal for the discerning palates of intoxicated 20-year-old boys.

Which is why it reminds me of the Dunleavy fiscal plan, which consists of arbitrary ingredients that don’t add up to a coherent package.

Aside from the tax bill up today, there is a Dunleavy plan to cut state spending every year and a constitutional amendment to say that Permanent Fund withdrawals must be split 50/50 between dividends and state operations. There will also be a proposed revenue limit, Dunleavy says.

The first question that should be put to the three Dunleavy employees assigned to defend the tax package—acting Revenue Commissioner Janelle Earls, acting Tax Director Brandon Spanos and Chief Economist Dan Stickel—is whether Dunleavy will promise that he supports the tax bill with his name on it.

The second question for Earls, Spanos and Stickel is why did Dunleavy wait seven years to propose a fiscal plan. When they tell legislators they have no idea, lawmakers should insist that they get a reply from the governor.

Determining whether Dunleavy really supports his own proposals is important because five years ago Dunleavy had Revenue Commissioner Lucinda Mahoney appear before a legislative committee to present revenue plans. She said Dunleavy would support the tax increases if the Legislature approved them.

“If the Legislature supports these measures, these are revenue measures that the governor would support as well,” Mahoney told legislators on August 10, 2021.

Dunleavy claimed later that he did not support new revenue measures.

A year ago Dunleavy public relations man Jeff Turner invented a story for Alaska Public Media that Revenue Commissioner Mahoney “misspoke” when she testified about support for revenue measures in 2021. There is no reason to believe that Turner’s tale is correct.

This time around what drives the need for temporary taxes, according to Dunleavy, is that Alaska state revenue is low now during the Golden Age of Alaska, but it will be higher starting in the middle of 2032, by which time he hopes to be pontificating in some other office.

“Alaska has prosperous years ahead,” Dunleavy claims. “Starting in fiscal year 2033, Alaska is projected to see higher revenue due to expected increases in pipeline throughput and the Alaska LNG project.”

We are to supposed to believe that six years from now the state will be getting a lot more money, enough to justify temporary taxes, bigger dividends and a decision now to get rid of corporate income taxes in the future.

What’s missing from the Dunleavy plan is any analysis to separate fact from fantasy and identify the level of pure guesswork. There is a great deal of guesswork.

We need a fiscal plan, one that is the product of cooperation, negotiation and compromise. This isn’t it. The governor came up with this package without talking to Alaskans and without persuading them of the need for action. It will not be approved.

The best I can say about the Dunleavy plan is that he has made it impossible for the candidates for governor and Legislature to avoid talking about taxes this year. They will not be able to repeat his false promises of the past about big dividends and no new taxes.

I want to commend Dunleavy for finally recognizing that his promises over the last decade were entirely wrong. If you want big dividends, it will require higher taxes.

We need a new recipe that has balance and thought in it, not the financial equivalent of hambadogbeanbrosia.

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