Pandering politicians—there won't be tax-free dividends

Rep. Nick Begich is campaigning on the idea that Congress might approve a law eliminating federal income taxes on Permanent Fund Dividends.

There is no chance that his bill will become law.

What’s almost as bad as Begich pandering with this rubbish is news coverage in Alaska pretending that Begich has made a serious proposal. Like most of the 7,933 bills filed in the U.S. House during this Congress, the bill is not going to pass.

Begich went on at length in his speech to the Legislature about his bill, the text of which has not been released, without ever confessing that this is a campaign gimmick designed to fool the gullible.

Begich claimed that because the state pays money to residents and the money has some connection to oil royalties, the payments should be exempt from taxes.

There are 434 members of the U.S. House who will have no interest in creating a special exemption in federal tax law for Alaska. Royalties from copyrights, patents, mining, and oil and gas are treated as taxable income under federal law. The bill, based on the fiction that the dividend is a royalty payment, would leave recipients of real royalty payments paying taxes on that income.

Instead of telling the truth, Nicholas the Third shared this fantasy with the Legislature:

“For decades the Permanent Fund Dividend has represented something unique in American governance. It reflects the promise made at statehood—that Alaska’s resource wealth would be shared with the people who live here. But today the federal government taxes that dividend. That means that a portion of Alaska’s resource revenue, revenue intended for Alaskans, is being sent to Washington instead. My bill, HR 7760, aims to remedy that. The legislation amends the Internal Revenue Code to exclude payments to citizens from certain sovereign wealth funds, including Alaska’s permanent fund, from federal taxable income,” he said.

At this, a couple of legislators began smacking their hands together, leading to a smattering of half-hearted applause. It was not a standing ovation, contrary to this report. Most members of the Legislature know this is going nowhere.

“In simple terms, Alaskans would keep the full value of their Permanent Fund Dividend without paying federal income tax on it. That means more money in the pockets of Alaskan families. It means stronger household finances in rural communities where the dividend is often a critical part of annual income. And it recognizes Alaska’s unique model of sharing resource wealth directly with its residents. The permanent fund is a symbol of the statehood compact. And Alaskans should receive those benefits without Washington taking yet another cut. This is another step toward ensuring that Alaska’s resource wealth truly benefits the Alaskan people,” said Nicholas the Third.

Begich, who routinely claims he opposes deficit spending and growing the federal debt, also routinely claims that Alaska needs more federal money for this, that and the other thing.

Money generated by Alaska’s royalty oil has a direct benefit to all Alaskans in that it helps pay for needed public services, from schools to public safety. It also is one of the reasons why Alaska has the lowest taxes in the nation.

Some Alaska residents challenged the IRS ruling that dividend income was taxable in a case that reached the 9th U.S. Circuit Court of Appeals four decades ago.

The residents claimed that the dividend was not income, but a gift from the state government. Federal courts said the money was not a gift, but income subject to the federal income tax. The Supreme Court refused to overturn the lower court ruling.

Even if this bill had a chance, it would be foolish to pursue it for practical and political reasons. The Begich plan weakens and calls attention to the time-honored practice of Alaska politicians, including Begich, who claim the federal government should be spending far more than it already does in Alaska.

One of the legions of Republican candidates for governor with no fiscal plan, Dave Bronson, wasted no time in joining the Begich pandering parade, claiming the dividend is not “new income created by work or wages” and should be tax free.

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