Contributed by Tim Hale
Almost exactly one year ago, I was saying that we should end the dividend program rather than institute any type of statewide tax. It turns out that I was wrong, and I would like to explain why.
I started having doubts about my position almost immediately, following a series of opinions by John Havelock, Clem Tillion and other respected long-time Alaskans. The dividend program’s effects and history are the envy of many other resource-rich governments around the country and the world. It is responsible for our state having the lowest income gap between the rich and poor in the entire country.
My doubts grew even greater as I spoke to my friends and neighbors once I decided to run for office. Their arguments in favor of taxation over dividend cuts were compelling. “The dividend is our share of the state’s mineral wealth,” they argued. “Cuts to the dividend are the most regressive form of taxation imaginable,” they said.
The real kicker however, came when I read the Institute of Social and Economic Research’s (ISER) report on the short-run fiscal impacts of our choices concerning the budget deficit. It turns out that cuts to the dividend are the most economically damaging option that we have. For every dollar we take out of the dividend, we take $1.40 out of the overall economy. Conversely, for every dollar we take in a tax, be it an income or a sales tax, we take $1.15-$1.25 out of the overall economy.
I am willing to admit when I am wrong, and I was wrong on that one. Cutting the dividend may be the best solution for people in my financial peer group, but it is not the best solution for our state as a whole. Instead, I would like to propose another solution.
A balanced solution to our state’s deficit must include several things, according to the University of Alaska’s ISER. We must use some portion of permanent fund earnings, institute new broad-based taxes, realize more of our mineral wealth and cut government spending. The legislature has decided that nothing else can be discussed until spending has been reduced further, but I disagree. It is critically important that we reduce the deficit as fast as possible in order to avoid a situation like this year, where we spent one-fifth of our savings in a single pay period. This is not fiscal conservatism, it is madness and it has to stop.
I propose that we immediately begin using the “Jay Hammond Plan” for permanent fund earnings. If this plan had been adopted for the fiscal year 2017, we all would have received a full dividend and the deficit would have been reduced by $1.3 billion, or more than a third.
I propose that we institute a new state tax to raise $700 million. A 1% flat rate income tax would raise $300 million. A 1-2% flat rate sales tax on every transaction, all the way to the top of the supply chain, could raise another $300-400 million. Raising the money this way, rather than through a “restructuring” of the permanent fund, is vastly less damaging to our overall economy.
I propose that we end the oil and gas tax credit program. This would save us an average of $250 million a year according to the Department of Revenue’s (DoR) “Spring Forecast 2016”. Some argue that this program provides benefits in the form of employment and new exploration. I would counter that by saying it is not the government’s role to create jobs. Corporate welfare is not a free-market principle, and the fact of the matter is that we simply cannot afford this program.
Even if all of these measures were adopted tomorrow, we would still be facing a deficit of $800 million. There will be cuts, and they will affect all of us. Still, it is much easier to cut $800 million than it is to cut $3.2 billion.
Talking to people over the last several months, I have found that nearly everyone is willing to give a little for the future of our state, as long as the solution is fair and the money is spent wisely. That is what I will work toward if elected in November.
Thank you for your consideration,