"It’s expected that this month and a half before the start of the special session will be used to negotiate at least the semblance of a deal between the House and Senate, as well as with their own members. With the governor and plenty of legislators up for reelection in 2018 nobody wants to stick around for very long.
"Expect the permanent fund restructure to be part of the plan and some other form of revenue, possibly a sales tax simply because it’s the one thing Walker has yet to try.""Friday in the Sun (Sept. 1): Gubernatorial grumbles and revenue rumbles," https://goo.gl/FRgkGD.
A statewide sales tax is not an unknown quantity. Most of the economic analyses done these last two years of the state's various fiscal options have included various forms of a potential sales tax.
The conclusion? It has the same general, regressive effects as a PFD cut: the Top 20% bear proportionately less of the resulting burden, the Remaining 80% more.
Here is ITEP's analysis:
"Unlike personal income taxes, general sales taxes tend to be regressive, impacting low- and middle-income families more heavily than high-income families when measured as a percentage of household income. This effect comes about largely because low- and middle-income families spend a larger fraction of their earnings on items subject to sales tax, while high-income families direct a large share of their income into savings and investments.
"Researchers at the Alaska Department of Revenue have determined that a 3 percent sales tax would raise approximately $500 million in revenue per year. This tax would include exemptions for various necessities such as groceries, health care, prescription drugs, shelter, and child care. Even with these exemptions ... the tax would be regressive overall, requiring payments from low-income Alaskans equal to roughly 2.2 percent of their incomes compared to 1.5 percent for middle-income families and 0.4 percent from the state’s top 1 percent of earners.
"More detailed results are available in Table A on page 15. Those results show that the impact on the bottom 20 percent of earners (at 2.2 percent of income) is more than three times as large as the impact faced by the top 20 percent (at 0.7 percent of income)."See "Comparing the Distributional Impact of Revenue Options in Alaska," https://goo.gl/N1sUUb.
ISER's analysis of the impact of a sales tax on Alaska families is to the same effect. In their October 2016 analysis, Effect of Alaska Fiscal Options on Children and Families, https://goo.gl/slnTgf, ISER researchers Matthew Berman and Random Reamey concluded this:
"A cut in PFDs would be by far the costliest measure for Alaska families. Households with children would pay about 2.5 times more per person than those without children, for every $100 million of revenue raised. A big reason is that children receive PFDs—so PFDs make up a bigger share of income for households with children.
"Sales taxes would be the next costliest for households with children. Again, those households tend to have lower incomes; sales taxes are the same for everyone, so they take a bigger share of the income of poorer households."And while sales taxes would have a lower adverse impact on overall Alaska income (i.e., the economy) than other options, they have a much larger adverse effect on overall Alaska income than the alternative simply of cutting a corresponding amount of long-term spending, balanced between cuts in personnel and non-personnel related spending. See "Short-Run Economic Impacts of Alaska Fiscal Options", https://goo.gl/ZxR1Hw at p. III-9.
In sum, adopting a statewide sales tax, especially layered on top of a 50% PFD cut/tax (which is Midnight Sun's prediction) is just doubling down on bad. It disproportionately impacts the Remaining 80% of Alaska families in order to soften the impact on the Top 20%, and in doing so worsens the situation of the overall Alaska economy and families in the midst of a recession, at the very time Alaska and Alaskans can afford it least.
In our view, government tax policy should treat all Alaskans proportionately. It should not take more from some in order to soften the blow to others.
The Top 20% use that very argument to argue against a progressive income tax. What is good for the goose is good for the gander: the state similarly shouldn't adopt so-called "new revenue" approaches which take proportionately more from the Remaining 80% in order to soften the blow on the Top 20%.
As we have said repeatedly on these pages, we don't believe any of these "tax and spend" programs are necessary. Instead, we believe using the Hammond 50/50 approach Alaska is well positioned to ride out the current low in the oil price cycle without self-inflicting any further damage on its economy. See "The Special Session version of “Implementing Governor Hammond’s 50/50 Plan," https://goo.gl/nE15Eo.
But, as we also have said repeatedly if we nevertheless are headed down this road it should be done with the least damage and disproportionate effects possible. We believe that replacing both the Senate and House proposals (both the PFD cut and income tax components) with a single flat tax -- a tax that imposes an equal distributional burden regardless of income class -- does exactly that.
We anticipate that we will be writing and talking much more about this subject in the weeks ahead leading up to and during the next Special Session. Alaskans should understand the effect of the steps some leaders are proposing to take on the overall Alaska economy and families.
We are not convinced the leaders either understand it themselves or, if they do, will go out of their way to explain it to Alaskans. We will work to do both.
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