Remember 'Micawber's equation'

Posted: Tuesday, March 05, 2002

I testified to House State Affairs recently on why they should not attack the Permanent Fund nor PFD. Judging by a recent Empire editorial and "Capital Notebook" column, some of what I said bears repeating and expanding.

Alaska can't have a billion dollar "gap" when it hoards $1.5 billion in the Constitutional Budget Reserve. Use the CBR when spending must exceed revenue (not true now) or to moderate boom-bust cycles.

Alaska can't cure its basic problem until current spending and current revenue more nearly equal one another. Charles Dickens knew that: He made his character Micawber say, "Income 20 pounds, expenditures (one penny short of 20 pounds): Result, happiness; income 20 pounds, expenditures 20 pounds and a penny: Result, despair!"

Remember "Micawber's equation." Alaska must bring spending and income in line with one another by cutting state spending, by increasing state income, or both. Breaking open the big PF piggy bank is not a real fix. Cutting spending (especially in Corrections, where inmate populations rose about 240 percent since 1984 while state population rose only 19 percent) and adding a progressive income tax help to balance state outgo and income; CBR does the rest.

The PFD isn't a "negative tax," nor "something for nothing," but is a right of ownership, a dividend. "D" is for "dividend." But the PFD is like an inverted "head tax," and is good for the same reason head taxes, or same level fees, are bad: An equal amount is a bigger percentage of a smaller income. Just ask former Gov. Hickel, who noted that Alaskans are the state, the state (i.e. the people) own the oil lands, and so Alaskans have a right to dividends from their own oil lands' money.

Cutting or capping PFDs may be like a "flat tax" in that everyone would lose an equal amount, but cutting PFDs has a most unequal and unfair effect. Why? Because an equal amount is a bigger percentage of a smaller income than that same amount is of a bigger income.

Alaska needs to grow its economy via clean processing of resources and of ideas (not by then-excellent 18th and 19th century colonial methods of extracting raw resources in exchange for manufactured goods), and tax that economy, closing revenue loopholes (like limited liability companies and partnerships which now pay nothing).

Joe Sonneman


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