Nobody likes taxes. I suspect those reading this don’t like being told they should have them. But if we’ve learned anything since the fiscal crisis began in 2014, sometimes the hardest solutions are the same ones we dislike the most.
Everyone has been hit hard by budget cuts, which were spurred by the historic drop of oil prices in 2014. An uncommonly recognized silver lining here is that we now all know that our current formula for funding the budget is unsustainable. In 2013, oil and gas revenues made up 92 percent of Alaska’s unrestricted revenue. Our dependence on oil wasn’t such a problem back when prices were riding high at $110 a barrel, especially since our generation has enjoyed the benefits of a fat PFD and fully-funded services like public education.
Cue the drop in oil prices, and the public has been shocked into the realization that relying on a single source of revenue is a horrible way to fund the government. The problem is that we’re stuck talking ourselves in circles about what to do about it. By that, I mean that we’ve ruled out pretty much any solution to our fiscal situation that involves restructuring the way we take in revenue, including taxation.
Alaska is in a unique situation here: we are the only state to have zero state taxes on consumption, property or income. Zero. In fact, Gov. Dunleavy recently rolled out a proposed constitutional amendment to block the implementation of state taxes, even if the legislature wanted to pass it.
At the same time, Dunleavy hasn’t proposed a single proposal that would diversify our revenues. The closest we’ve gotten is a few attempts to propose state income taxes, most recently by the bipartisan coalition in the Alaska House of Representatives, which went nowhere.
Our refusal to consider taxes comes from the two cardinal rules in Alaska politics: don’t touch the PFD and don’t propose any new taxes. At the same time, politicians are expected to find magical sources of new revenue and cut “government waste” to balance the budget.
There’s a few key problems with this approach. The first is that there aren’t any streams of revenue big enough to replace oil and gas. The nature of our geography is cold, rural and dislocated from the remainder of the states. As a consequence, we’re largely reliant on natural resources. There aren’t enough people to fuel demand for large industries that typically dominate the state revenues of other states.
Some have tried to propose clean technology as an alternative source of revenue. Indeed, the state has made great strides with things like geothermal technology, and has increased the use of solar panels and wind turbines. You don’t have to convince me, a huge supporter of the increased use of renewable energy, that that’s a good thing. But you can’t fund our state budget with it. Solar panels rely on sunlight, which is sparsely present in Alaska. Wind turbines spin only when there’s wind, which can’t be guaranteed year-round. Geothermal energy requires major adaptations and up-front costs. Though some of these problems can be mitigated by proper and efficient use, it’s unclear how reliable renewables would be in funding state services the same way oil has.
The second problem with our cut-and-spend approach is that as oil revenues decline and prices stay low, the state is running out of things to cut. The Alaska State Legislature has already cut the budget over 40 percent, and can’t go much further without causing irreparable harm to the state. There’s only so much fat you can trim before you reach the bone.
So here we are, stuck in a fiscal rut. It’s extremely difficult to pull in new revenue, and we’re reaching our limit with budget cuts. It’s time to revisit the political elephant in the room and consider if we’re willing to risk continued fiscal strain for the sake of avoiding a viable but unpleasant solution.
To be clear, there are better taxes than others. Property taxes are likely to hurt more for some than others. Sales taxes would hurt rural communities who already pay an arm and leg for crucial commodities. An income tax, however, would substantially fill the hole in the budget and provide a fair way to collect revenues without hurting the most vulnerable.
Income taxes, unlike most others, can be applied progressively, meaning you can tax different earners at different rates. They can also be levied on seasonal earners like commercial fishermen and slope workers, who currently enjoy the luxury of our services and roads without any of the costs.
Our mindset is fixated on the supposed preservation of economic freedom, which gives us the illusion of prosperity while masking the consequences of doing nothing during fiscal crises. It’s time to recognize that letting the state’s irresponsible and unsustainable model for fiscal solvency does more harm than any broad-based tax ever will.