Permafund plan may trigger tax

Two options go before Senate

Posted: Thursday, March 23, 2000

The Internal Revenue Service could get the biggest Alaska Permanent Fund dividend check ever if either of two measures before the Legislature is approved.

The measures - Sen. Jerry Mackie's $25,000 one-time payout and a PFD-protection constitutional amendment proposed by Sen. Lyda Green - were before the Senate Finance Committee on Wednesday.

Mackie said about 28 percent of the $25,000 dividend his proposal calls for would go to the IRS. And an official from the Alaska Permanent Fund Corp. warned Green's proposal could land more than a third of the $27 million oil-wealth savings account in the federal treasury.

Green, a Republican representing the Mantanuska and Susitna valleys, wants to change the current dividend program from a statute - a law that can be changed with a bill - into a part of Alaska's constitution, which would make it far more difficult to alter.

That idea appeared to hit a major roadblock.

Ron Lorensen, a lawyer who

works for the permanent fund corporation, said moving the dividend program into the constitution could undermine the fund's exemption from federal taxes. He said it would set in the legal equivalent of stone a private interest - the bank accounts of Alaskans.

The chances of the IRS going after the pot of money, he said, would go from ``below 50 percent to well in excess of 50 percent'' with Green's measure.

Sen. Al Adams, a Kotzebue Democrat, asked Lorensen what an IRS raid on the permanent fund would mean.

If the IRS came calling, Lorensen said, it could cost Alaska more than a third - 39 percent - of the fund's value.

Green countered by saying there was no proof that the IRS would come after the fund, and no proof that they won't. She concentrated her committee presentation on the preservation of the dividend program as it exists today.

That program resulted in checks nearing $1,800 for every Alaskan last year.

Green said making inflation-proofing the fund and dividends is the point of her constitutional amendment, House Joint Resolution 35. The measure would need two-thirds approval in the House and Senate and voter approval to take effect. The state's fiscal gap - the difference between state revenues and spending - is not an issue addressed in her measure.

``That's left up to the Legislature,'' Green said.

She said her proposal was the opposite of the one proposed by Mackie's Senate Joint Resolution 33, which would send half of the fund out to Alaskans in a final dividend check, and then end the dividend program. That plan, named after the Craig Republican, would use the rest of the money to help pay for state services.

Mackie said his constitutional amendment would fill the fiscal gap, which is projected to be near $700 million in 2001. He said his measure is straightforward and will work.

``Let's keep it real simple,'' Mackie said. ``You get $25,000 now and it's over.''

As things are, Mackie said, the public won't let the Legislature tap into earnings from the fund to help fill the funding gap. His measure, he said, would break that barrier and solve the state's fiscal problems without taxes.

``The public has taken on an attitude that the permanent fund is there just for the permanent fund dividend program,'' he said.

He said federal taxes on the big dividend checks will take a bite out of the payout, with most giving up 28 percent of their dividend to the IRS.

Another concern, he said, has been whether people would lose their eligibility for income-based programs, such as welfare. Other than food stamps and Social Security insurance, people would not lose existing eligibility, he said.

Adams voiced his support for getting Mackie's idea before the electorate.

``This is the best long-range plan that is before the Legislature,'' he said. ``I say let the people vote on something like this.''

He followed his compliment with a concern about what the end of the dividend programs would mean for future generations of Alaskans.

Mackie said that was a hole in his plan.

``This is one that I lose on,'' he said.

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