Notes from the Alaska Fiscal Cliff: The Alaska Senate's REAL deal

In a guest commentary in this week's Alaska Journal of Commerce, Senate President Pete Kelly says he is telling Alaskans "the deal" about the positions being taken by the Alaska Senate R's. The sky isn't falling, https://goo.gl/rf7Z3s.

He isn't. 

Here's the real deal. Right now in DC, Congressional Republicans are working to increase the income of the average American family of four by $1,100 by reducing federal income taxes.

This past session Senator Kelly's Alaska Senate Republicans voted to decrease the income of that exact same family of four in Alaska by more than $4,000 by taxing (what some refer to euphemistically as "cutting") the PFD by over 50%.

Its that simple. R's in DC are working to increase the income of the average family of four. In Alaska, the Alaska Senate R's are working to decrease the income of the same family by roughly four times more.

The Senate's approach also has negative effects beyond the family of four. According to unrefuted economic studies from last year by the University of Alaska Anchorage's Institute of Social and Economic Research, taxing the PFD at such a level: 

• “Has the largest adverse impact on the economy [of all the new revenue options] per dollar of revenues raised,”   https://goo.gl/ZxR1Hw at A-15;

• Is “by far the costliest measure for Alaska families,” https://goo.gl/ivf9D2 at 1; and

• “[W]ill likely increase the number of Alaskans below the poverty line by 12–15,000 (2% of Alaskans),”https://goo.gl/iuTjv2 at 14.It doesn't have to be this way. 

Let that sink in for a moment.

The headline analysis of the Alaska Senate's proposal: "Largest adverse impact on the economy." "By far the costliest measure." "Will likely increase the number of Alaskans below the poverty line" by 2% of the population.

That is the real "deal" about the Alaska Senate's proposal.

It doesn't have to be this way. As we have explained elsewhere, we believe that with some additional cuts in government spending Alaskans could avoid the need for any so-called new revenues by implementing Governor Hammond's original vision for use of earnings from the PFD, the so-called "Hammond 50/50 plan." See "The Special Session version of “Implementing Governor Hammond’s 50/50 Plan,” https://goo.gl/nE15Eo.

But even if government can't cut spending enough to avoid raising some new revenues there are other alternatives that spread the burden much more broadly -- and much more fairly -- than the Senate's approach of dumping the resulting revenue burden almost entirely onto the backs of middle and lower income families, with the consequential adverse effect on the overall Alaska economy and Alaska families. 

The alternative we support and believe is the best option for both the overall economy and Alaska families is a flat tax, the same that already has been adopted in eight other states that have analyzed the issue.

Raising the same amount as the Senate proposes through PFD cuts would only require a 2.75% tax on Alaskans rather than, as under the Senate's proposal, a less than 2% tax on those in the upper 20% income level, but a greater than 30% cut on a family of four in the lowest income class.  See "If we have to go there," https://goo.gl/58t16s.

In his piece Senator Kelly argues that the Senate's approach solves the state's fiscal situation "without taxing Alaska’s wage earners."

That's simply wrong.  The Congressional R's are reducing taxes precisely so that, nationally, average "wage earners" can keep more of their income in their pocket.

In Alaska, the Alaska Senate R's are taking the exact opposite approach. 

For an Alaska family of four that takes home roughly $50,000 before federal tax reform, instead of the $51,100 in take home that the Congressional R's approach would achieve, the Alaska Senate R's proposal will cut the family's income to below $47,100.  There are no two ways about it, that is taxing Alaska wage earners.

By giving up on cutting government spending further the Alaska Senate R's have put new revenue measures -- taxes -- on the table. The question is do we need to go there and, if so, what is the best way.

If we do need new revenues there is a much, much, much better way for both the overall Alaska economy and Alaska families than the Senate's approach.

And that is the real deal.