6 President Pete Kelly, R-Fairbanks, said after the vote, adding, “It’s not good for the economy, it’s not good for Alaska, it’s not good for our future. Most of all, it’s not needed” (Brooks, 2017). Governor Dunleavey was elected in 2018 based on campaign promises of full PFDs, including backpay for the amounts over the capped dividends during the Walker administration, and a balanced state budget by cutting spending alone. Dunleavey’s first budget for FY 2020 presented to the legislature accomplished just that, reducing state spending by 25%. The legislature fought many of these cuts, with Dunleavy ultimately vetoing those that were reinstated, and the legislature was unable to override all the vetoes. In July 2019, an effort to recall the governor on the basis that his “sudden, severe, and sometimes illegal budget cuts have caused tremendous harm to Alaska and Alaskans” was launched (Braunlich, 2020). Supporters needed to gather 71,252 signatures to require a recall election; even so, the campaign announced on August 25, 2021, that it was dropping the recall effort because the campaign was short of the required signatures, having collected only 62,373 as of August 21 (Ballotpedia, n.d.). The committee explained that collecting signatures during the pandemic was difficult and that the decision to halt the recall effort was strategic and wise (Bohrer, 2021). In general, the past eight years have included a range of policy options through both executive and legislative bodies to address Alaska’s budget challenges. With the extreme market volatility of the oil industry and long-term decline in oil production, new revenue sources are inevitable. What Next? Learn To Love Taxation Among the proposed solutions to generate new revenue streams, a statewide sales tax and a progressive income tax are the top two options. Though either of these options could make a significant contribution toward closing Alaska’s budget gap, their impacts on Alaskan residents and the long-term sustainability of the tax structure can vary. The progressivity of any income tax would be critical for low- to middle-income Alaskan population groups. A study conducted by the Institute of Social and Economic Research shows that a progressive income tax would allow four of every five Alaska residents to pay less than they would pay if a broad-based sales tax were implemented, regardless of the amount of revenue that the state might try to raise (Institute on Taxation and Economic Policy [ITEP], 2016). The study assumes that an income tax would be calculated as a percentage of federal tax liability, while a sales tax would apply to all retail expenditures, except for food at home, health care, education, and shelter. Thus, a progressive income tax would allow the state to collect a significant share of the revenue from a few households with the highest incomes, with the contributions needed from the rest of Alaskan households being relatively lower. Alaska has witnessed increased income inequality over the years similarly to the rest of the US. The inflation-adjusted incomes earned by the bottom 99% of Alaskans went down by 18% between 1979 and 2007, while income for the top 1% increased by 119% after adjusting for inflation (ITEP, 2016). If past trends can be used to estimate where Alaska is headed, a personal income tax could be effective and sustainable in terms of generating revenue and rebalancing income inequality. A common point of discussion raised against income taxes is the possibility of hindering long-term economic growth by discouraging people from working hard to avoid higher tax brackets, thus decreasing spending and disincentivizing savings. Certainly, all the proposed solutions have corresponding tradeoffs, but the ideal solution should be focused on minimizing impacts on most Alaskan residents. In addition, some of the tax burden paid by the highest income population will be offset by the PFD they would continue to receive. A statewide sales tax would have its attractions as well. Because a sales tax would be collected largely by retailers instead of individuals, tax administrators would be able to deal with fewer players, which is advantageous in a large, sparsely populated state, as administration and enforcement can be expensive. Sales taxes also would be imposed on consumption rather than labor as opposed to income tax, meaning their impact on longterm economic growth might be smaller and collections less volatile. The biggest benefit
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