Wednesday, September 14, 2016

Walker's PFD tax disproportionately burdens middle and lower income Alaskans, undermines the overall Alaska economy ...

A tax is a "financial charge or other levy imposed upon a taxpayer by a state or the functional equivalent of a state to fund various public expenditures." Applying that definition, we (and many others) view the PFD cut as a tax because it transfers what otherwise would be retained as income to the state.

But it is a tax that falls disproportionately harder on middle and lower income Alaskans and in doing so, greatly benefits higher income Alaskans. As demonstrated on the chart above, by income the tax rate is between 6-23% on the lowest 30% of Alaskan households, between 3-5% on the middle 40% of Alaskan households, 2% on the next 20% of Alaskan households and finally 1% on the upper 10% of Alaskan households.

If you take the view -- as do many -- that, when necessary to tax, all citizens should support government in roughly equal percentages, Governor Walker's PFD tax in essence acts as a subsidy by lower and middle income Alaskans of higher income Alaskans.

But while that is some of it, that is not the primary reason we oppose the Governor's PFD tax. It is simply because of the adverse effect the tax has on the OVERALL Alaska economy. Here is what ISER said in its report last March: "The impact of the PFD cut falls almost exclusively on residents, and it is highly regressive, so it has the LARGEST ADVERSE IMPACT ON THE ECONOMY per dollar of revenues raised." at A-15.

Put another way, by transferring money which otherwise is being broadly dispersed into the private sector to the government sector, Governor Walker's PFD tax helps some selected (government-determined) parts of the economy but at the expense of the OVERALL ALASKA ECONOMY. It is, in essence, a subsidy of those able to direct government spending to their benefit at the expense of Alaskans overall.

As we have explained previously, the use of government power to favor some segments of the economy at the expense of the overall is the very definition of crony capitalism. Governor Walker's PFD tax falls squarely in that category.

Of course, this is not entirely on Governor Walker. The 14 Senate Majority members that voted in support of SB 128 (Sens. Hoffman, Kelly, MacKinnon, McGuire, Micciche, Olson, Stedman, Stevens, Bishop, Coghill, Costello, Egan, Giessel, Meyer) -- which would have imposed a permanent PFD tax -- also share in the blame. But ultimately the House Finance 6 (Reps. Gattis, Guttenberg, Kawasaki, Pruitt, Saddler & Wilson) saved the Senate from itself. The definitive step -- taxing this year's PFD by veto -- ultimately falls directly on the Governor.

It is hard to express how disappointed we are in those elected or who are running as "fiscal conservatives" who voted for SB 128 or otherwise support the Governor's veto or that approach now. Not only have they failed in the commitment they made when they formed the majority after the 2012 elections to bring spending down to long-term sustainable levels (Goldsmith approach), they have compounded the failure by choosing as an alternative the very approach which has -- quoting ISER -- the "largest ADVERSE impact on the economy."

Their legacy? A resulting tax rate of up to 23% on the lowest income Alaskans and an approach which has the "largest ADVERSE impact" on the OVERALL Alaska economy. They fooled Alaskans once; hopefully they will not be given the opportunity to try it again.