Monday, January 25, 2016

Is the PFD a right or privilege, and why that may matter ...

Earlier today I wandered into a fairly intense exchange over whether the money distributed through the PFD "belongs" in the first instance to the state's citizens (with the state acting only as a banker in making the distributions) or "belongs" in the first instance to the state and, so, is distributed to citizens at the state's beneficence ( the doing of good; active goodness or kindness; charity).

This afternoon the same discussion broke out during the course of a discussion on Facebook using different terms:  is the PFD a "privilege" or a "right".

I anticipate writing longer on the subject at a later time, and also intend to discuss it during my regular Tuesday segment tomorrow morning at 7:15am on KBYR AM 700's The Michael Dukes Show, but for now thought I would share the afternoon discussion (because it is the one in writing) for those that are interested in the issue, and why it may matter in the upcoming debate on Alaska's budget.

The discussion follows (and is available directly here if you want to make any comments of your own, or follow along with subsequent comments of others).

In response to a post earlier today some disputed that cutting the PFD (as proposed by Governor Walker and the GCI coalition) is a tax on Alaskans. The characterization isn't original with me; it is based on several recent opinion pieces by Clem Tillion, who was Senate President and a key player in the adoption of the PFD. This is how he explains the view: "Upon becoming a state we received a 100-million-acre land grant, much like the land grant schools and some colleges received in the Lower 48. This was to help provide an income base for a large area with a small population. ... The dividend, as envisioned by Gov. Jay Hammond, was to be a share of the earnings of oil and other nonrenewable resources that, unlike in the other 49 states [where the land is owned individually and, thus, royalty revenues are received directly], is owned by the people of Alaska. [In that context,] the dividend is more a return on what we own, like the return on AT&T stock, or as Jay preferred to call it, 'Alaska Inc.' It is not, and never was, meant to be welfare [and] [c]apping [the PFD] is in itself a major tax, and a tax paid only by Alaskans. ... " Here are three of Sen. Tillion's pieces that explain his view: and
OPINION: All Alaskans must contribute to a balanced budget, but let's not gut either the dividend or the…
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Taylor Bickford His argument, if I understand it correctly, is that capping the PFD is a tax, and a less desirable one than other options that are on the table. He does acknowledge that Alaskans will have to pay their way, so the implication here, I think, is that we should close the shortfall with another tax, like an income tax or a sales tax. I guess whether you view a PFD cap as a tax is actually insignificant, because he's not advocating against taxes per se. Protect Alaskans from the PFD cap tax by taxing them in other ways. Am I missing something?
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Brad Keithley I think so. Because it is so regressive, is focused entirely on Alaskans and, because the PFD is so broad based, under some circumstances a PFD cut actually hurts the state economy more than it helps and when viewed as a tax it is the worst economically of all the options. I think some are trying to avoid that analysis by calling it something other than a tax. More on that tomorrow on my Dukes segment.
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Taylor Bickford Well if we are simply weighing it as a tax vs. tax, that changes the conversation and should take a lot of the emotion out of it. I'm not a tax expert or an economist, so I'll be interested to see the arguments made by you and others to understand the relative economic impacts of all these various proposals (I think Gunnar Knapp is working on something like this for the Legislature). It's not just about economic impact, though - you also need to understand the relative impact each solution will have on the budget deficit. If you forego a PFD cap in favor of a sales tax, then you have more work to do on the deficit itself, which requires another solution with another set of economic impacts. Back to the tax discussion - in order to view a PFD cap as a tax, you have to believe that the money is *yours* to begin with. I know what the Constitution says, but I've always viewed the dividend as a privilege rather than a right, which is not the same way I view the money I take home from the fruits of my labor.
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Brad Keithley Ahhh, you tumbled quickly to the core issue ("privilege or right"), exactly the subject of my discussion tomorrow with Dukes and which leads us directly back to what Clem (and others, Hammond wrote on this some as well) had to say on the issue, since they were much closer in time to the issue than us.

As you will see from his writings, Clem believes that it is a right, and there is substantial support for that. Because individuals effectively are prevented from directly owning mineral interests in Alaska under the statehood act (something which is natural in every other state and a key to the economies of those states) , Clem and others believed that the PFD was the only mechanism available to them to convey a similar interest to Alaskans. It -- half of the earnings from the PF -- was, in essence, the royalty share due individual Alaskans (and the state's private economy) for the production from the lands Alaskans were compelled to own collectively, rather than permitted (as in other states) to own individually. Extrapolating from that, certainly it is your right to view it as a privilege and to give your share away, but it is not your right to make the same judgment and simply take it away from everyone else.

As for the economics, both Scott and Gunnar actually already have talked about that in a way. Here is Scott's take: "“[M]ost of the cash from dividends will ultimately find its way into the Alaska economy to increase employment, population, and income. … [If the dividend instead had been diverted to state government,] the most likely alternative use of the PFD would probably have been to increase capital spending by state government. … Capital spending would have generated less employment and increased income inequality.”

Here is Gunnar's: "Preliminary findings show, for example, that cutting $100 million by laying off state workers will cost the economy significantly more jobs and income than would an income tax to raise the same amount. ... " The article also discusses a sales tax. The option not mentioned (because it would do the most economic harm), cutting the PFD.

I agree it may make the politics of resolving the deficit more difficult, but the Alaska economy isn't only about the government economy, more than half of the economy is privately driven and it is about to go through significant turmoil as well as oil projects start ramping down. We need to do evaluations based on what is in the best interest of the #overall Alaska economy. Retaining the PFD (to keep those dollars in the private economy) is part of that.
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