Will 2018 be the year that Pete Kelly’s wrecking crew finally gives serious consideration to a state income tax? I’m not betting on it. The Senate President and Fairbanks Republican still thinks the fiscal gap can be solved with a reliance on Alaska Permanent Fund earnings, more budget cuts, and a modest rise in oil production and prices.
If he’s right, it’ll allow Alaskans to continue living like first-world citizens in this third-world land.
I’m a skeptic regarding Kelly’s plan. Even though long-term investments almost always pay good dividends, the Fund’s earnings aren’t a guaranteed bet. After the housing bubble burst in 2008, it lost 18 percent. The return was also flat in 2012 and 2016.
But mostly I think a modest income tax is justified to nudge more Alaskans toward becoming active investors in our state government. We like being the lowest taxed citizens in the country, but continuing to have almost the entire bill paid by someone else reinforces a culture of disengaged entitlement.
And I mean a real income tax, not the head tax compromise Gov. Bill Walker proposed before the last special session. That’s regressive. It makes no sense to cap the tax for the wealthiest while the rest pay a flat rate. That’s especially true because we already had our PFD cut equally regardless of income.
Kelly’s idea that restructuring the Permanent Fund for this purpose isn’t novel. Walker was the first to propose it. They may disagree on the details just as they do on new taxes, but both know we’re fortunate their predecessors were wise enough to establish it.
If they hadn’t, we’d have a fraction of our current population. And the standard of living here would be more like West Virginia. Their Gross Domestic Product may be 50 percent greater than ours, but according the Census Bureau, our average household income is 75 percent higher. And they have almost twice as many people living in poverty.
The difference is Article 8 of the Alaska Constitution. It requires the state’s natural resources to be conserved or developed for the maximum benefit it citizens. That and the oil we own are the foundation of Alaskan affluency.
The West Virginia story is very different. When the coal bonanza arrived there in the late 1800s, land throughout the state was mostly owned by distant business interests. The wealth produced by mining it was transferred to them and their shareholders. And the state collected almost nothing in tax or royalties.
Imagine if Exxon-Mobil, ConocoPhilips and BP — Alaska’s big three oil producers — were absentee owners like that instead of leaseholders. Obviously, there wouldn’t any Permanent Fund or our annual dividend. State government would a lot smaller. But the money didn’t just grow the bureaucracy Kelly wants to shrink. Especially in rural Alaska, it paid for the engineering and construction of new schools, roads, boat harbors, water treatment plants and more.
Until the 1970s West Virginia saw no such benefits. By the time they established a public trust like ours, more than half of all their coal produced to date was gone. Strip mining may have reversed the industry’s decline, but it employs only a fraction of the workers of the industry’s 1940s peak.
Which leads to the other lesson in this tale of two states. Not all places are equally compatible with the idealized model of a capitalist society. West Virginia’s mountainous terrain wasn’t as inviting to settlers and industry as neighboring Virginia and Ohio. Without a manufacturing base, it offered scant employment opportunities aside from coal mining. They’ve since used tax incentives to attract the chemical, bio-tech and pharmaceutical industries. But they haven’t lifted the standard of living much. It’s still near the lowest in the country.
Alaska has bigger problems fitting the model. We’re too far from the consumer marketplace, and our cost of living is too high, for most industries to relocate here. And in terms of geographic and climate hardships, we’re an American version of Siberia, a curiosity to visit but not a place to live.
Diversifying our economy has been a political rallying cry for years. It hasn’t produced anything more than dire warnings though. In the meantime, we’ve continued to flourish in the libertarian dream of low taxation. All while enjoying the state’s redistributed oil wealth like any proud socialist nation.
• Rich Moniak is a Juneau resident and retired civil engineer with more than 25 years of experience working in the public sector.