My Turn: Sales tax vs. income tax vs. dividend loss

Posted: Thursday, July 17, 2003

Some Fat Cats, fearful an income tax will skim off much of their cream, would instead ladle milk from your dividends into the fiscal gap. Ironically, to do so would simply foster more spending, which they assert they deplore. Do you think for a moment if dividends go, those dollars instead will be saved? Of course not. They'll simply be spent as politicians rather than you think best. Much pressure to cut excessive government costs will be gone.

In hope of conning you into letting them milk dividends, some Fat Cats assert they are but a socialistic redistribution of wealth. Nothing could be further from the truth. Socialistic redistribution of wealth involves taking money from the "haves" and redistributing it to the "have nots." Dividends, by contrast, make all of you a bit more of a "have" by putting some income generated from investments of your oil wealth directly into your pockets. You can then spend it for what you feel is your constitutionally mandated "maximum benefit" rather than permitting politicians to redistribute it as they see fit. Hardly socialistic, it makes each Alaskan a mini capitalist. Confiscating your dividends would be the worst kind of socialistic "redistribution": Taking the same number of dollars from even the most humble "haves" to pay for inequitably distributed programs is grossly unfair and the antithesis of what some so-called "conservatives" say they espouse.

Thanks to efforts of some like Sen. Stevens and Clem Tillion, who months ago proposed to President Bush that a dividend program be instituted in post-war Iraq, the democratic-capitalistic merits of such are being promoted by not only the president, but Colin Powell, several members of Congress, prominent economists, national newspapers and the World Bank. Why then do some Fat Cats plus a few timid politicians bad mouth it? Very simple. The very wealthy would prefer that all, including themselves, lose dividends rather than pay what they fear will be more in an income tax. Timid politicians simply lack the stomach for either making painful budget cuts or supporting revenue enhancements otherwise required to close the fiscal gap should they not be able to instead shovel your dividends into it.

I once considered myself a Fat Cat and thought I'd pay more income tax than with either a sales tax or dividends loss. Yet in checking my records to my surprise I found I'm a far leaner cat than I thought, i.e., had the House income tax passed two years ago it appears I would have paid far less than with the sales tax considered last session. However, in neither case would it cost as much as would loss of dividends. I suggest all you lean cats out there go through the same drill. You may be surprised. Be assured the Fat Cats have already done so. Hence the fatter the cat the louder the squall when it comes to an income tax. Understandable.

Does that mean I favor an income tax? Though fiscally perhaps I should, philosophically I'm inclined to Gov. Murkowski's "user fee" concept. The more you benefit the more you should pay. That concept is far better and more fairly accommodated with a sales tax; at least so long as it does not cost the average Alaska family more than they receive in dividends. Only when it did so, should an income tax, (capped perhaps at no more than that year's dividend to reduce the howl from Fat Cats) be considered. Last should be any hit on dividends. Advantages of an income tax are federal tax deductibility and better assurance new development will pay its own way - something which little development other than oil now does absent an income tax. That's why we have a fiscal gap.

Though the income tax is D.O.A. according to co-chairmen of the House Ways and Means Committee, its Road Show could provide a great service by analyzing the comparative impact of sales, income taxes and dividend loss. The committee's objective should be to enlighten Alaskans as to which approach has the least adverse impact upon them. Let the chips fall where they may. Should some fall into their milk, perhaps at least a few thinking Fat Cats will be less likely to try to lap up your dividends.

Hammond is a former governor of Alaska. He lives in Port Alsworth.

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