A view of Denali, formerly known as Mt. McKinley, on Sept. 1, 2015 in Denali National Park, Alaska.
Photo by Lance King/Getty

Ready or not, Alaska faces a choice on taxes

Ordinarily, a state facing a budget crisis probably wouldn’t be particularly interesting to anyone outside that state, but Alaska is facing a unique set of circumstances.
 
Currently, Alaska has no state income tax and no statewide sales tax. For many years, most of the state’s money came by way of oil revenue and federal funds from Congress, which worked out fairly well for Alaskans – right up until oil prices collapsed and spending from Washington, D.C., stopped flowing.
 
It created a mess that the state’s independent governor, in his first year, is now trying to address with some highly unpopular measures. The Alaska Dispatch News reported overnight:
Gov. Bill Walker on Wednesday released his long-awaited proposal to fix the state’s budget deficit – a plan with new and steeper taxes, smaller budget cuts than last year’s, and a restructuring of the Alaska Permanent Fund that includes a cut in state residents’ annual dividend.
 
The plan, released along with a preliminary budget proposal for next year, is aimed at permanently closing by 2018 a multibillion-dollar deficit that stems from a crash in the price of oil and reduced oil production. Taxes and royalties from oil have paid for the vast majority of Alaska’s government and services for decades.
Part of the problem is that Alaska’s legislature is led by a Republican majority in both chambers, which isn’t fond of the idea of bringing back a state income tax that was eliminated 35 years ago.
 
State Sen. Pete Kelly (R), who co-chairs of the state Senate’s Finance Committee, responded to the governor’s plan in a statement that said, “I wish I had some pithy comment to express my disdain for taxes, but I don’t. So for now, I’ll just say no.”
 
FiveThirtyEight’s Ben Casselman recently published an analysis of the state’s challenges, explaining that many in Alaska “would rather go broke than pay taxes.”
 
Casselman’s piece added a twist that shows just how unique Alaska’s finances are:
After decades of saving a share of its oil revenues, the state has about $65 billion in the bank. Most of that money, more than $50 billion, is set aside in a special account called the Permanent Fund that can’t be touched under the state Constitution. That fund generates billions of dollars in annual investment income that isn’t similarly restricted. But most of that income goes to dividend payments that are sent to every Alaskan each year. The payments vary from year to year based on investment returns and other factors; this year’s dividend, which is being paid this month, is $2,072.
Not surprisingly, Alaskans like getting these checks every year – a detail Gov. Bill Walker understands quite well. It’s why the governor, when presenting his fiscal plan yesterday, reminded the public that without drastic measures, dividend checks may very well disappear altogether.
 
It’s why his administration is calling Walker’s plan the “Permanent Fund Protection Act.”
 
 

Alaska

Ready or not, Alaska faces a choice on taxes