Income tax no fix for budget woes

Posted: Friday, May 09, 2003

While I have clearly and consistently opposed reinstating a state income tax, the time seems right to remind Alaskans and their representatives of the reasons for my opposition. The truth is, the so-called "progressive" income tax underlying many fiscal plans would be bad for our economy, working families and the role I see for state government.

My reasoning begins by addressing the question: "What is the role of state government?" Fundamentally, it is to provide for public safety,

education and transportation. I am also committed to growing the economy through resource development, using the latest technology and with responsible environmental oversight.

I genuinely believe that smaller government will be better government, because it can be more effectively managed and less costly. Thus,

downsizing government in a period of reduced revenues is a much better tool than an income tax.

A state income tax takes money directly from the pockets of hard-working Alaskans and puts it into the bottomless pockets of state government. Consider that the state income tax that took in $210 million per year at its 1977 peak, would today provide $660 million in inflation-adjusted dollars. Calculating the impact over the 22 years since the income tax was repealed, and allowing for inflation, it is clear that the absence

of an income tax let working Alaskans keep a total of $9.9 billion of their own money.

Breaking the numbers down to the family level makes the point even more clearly. In 1980, an average Alaska two-income family earned $40,000 and paid about $720 a year in state income tax, equal to $130,000 and $2,300 today. Over 22 years, this average family would have saved about $35,000.

State government hasn't missed that $9.9 billion in tax revenue, either. In fact, Alaska has been so flush that legislators since 1980 have used surplus revenue to bulk up the permanent fund, adding more than $14 billion of the fund's $22 billion principal.

What of other states that rely on income taxes? Well, as the white-hot stock market was fueling national economic growth in the 1990s, both personal income and state income tax revenues soared. States responded by using the additional revenue to expand or create new programs and services. After the bubble burst, however, state revenues shrank, deficits continue to grow, workers face layoffs and citizens face reduced services. At least eight states with income tax have seen their credit ratings significantly downgraded by Moody's or Standard &

Poor's. Clearly, income taxes are no panacea.

The expansion of Alaska's state government that began with our late-1970s and early-1980s oil wealth has left a legacy of government programs that even now remain to be evaluated and perhaps eliminated. Only the efforts of Alaska's Republican-led Legislatures kept the previous administration from following national trends to grow spending out of control, which would have made Alaska's fiscal gap even wider.

It is also important to examine the rationale of the most vocal income tax advocates, such as editorial writers at some of the state's largest newspapers, who push "progressive" taxes while vilifying "regressive" user fees. Taking a higher percentage of earnings as one's earnings go up, as a matter of public policy, is nothing new to those suspicious of capital generation, or ignorant of how it is achieved.

Nor is taxing some residents with one hand while handing out money with the other, as we do with many programs of state government, be they welfare payments, longevity bonuses or subsidies for businesses, such as the multi-million dollar investment in the Alaska Seafood International plant. Some would assert that the entitlement program known as the permanent fund dividend is another such example.

Redistributing private wealth through taxes predates the U.S. federal income tax. It has been a theme in most socialized nations. Reinstating a state income tax would simply crank up the redistribution machine a few more notches.

Loading additional taxes on Alaska's most productive citizens is simply bad economic policy.

I continue to believe that the solution to our fiscal gap is not to be found in taxing Alaskans to support the growth of government. Rather, we should be tasking government to support the efforts of Alaskans, who want to build economic opportunities for themselves and future generations.



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