Over the last few days we have been engaged in a debate about ISER’s analysis of the economic effects of various fiscal options. The analysis is contained in a report, Short-Run Economic Impacts of Alaska Fiscal Options, published by ISER last March (the “March 2016 Report”). Portions of the report were included also in a presentation by ISER this week before the Senate Labor & Commerce Committee (“What do we know about the Alaska economy and where is it heading?“).
The debate has been about the relative effect of cutting the PFD compared with other options. While various charts have been used in the course of the debate, the most complete is that above from the March 2016 Report, which shows all of the options and the relative “high” and “low” impact of each separately on overall Alaska income and jobs.
The “Income Impacts” side shows the relative “high” and “low” impact of the various options per $100 million of deficit reduction. The impacts are shown in terms of the reduction in overall Alaska income by taking a given action.
For example, reducing the deficit by cutting the permanent fund dividend (next to last line) by $100 million (and transferring the money to government) results in a reduction in overall Alaska income of between $130 – $149 million. On the other hand, reducing the deficit by raising $100 million through sales taxes (fewer exclusions, eighth line) results in a reduction in overall Alaska income of between $117 – $134 million.
Comparing the mid-point of each range — which we have used in various presentations to help simplify the discussion — demonstrates that reducing the deficit through sales taxes reduces overall Alaska income by approximately $125 million, while cutting the PFD results in reducing overall Alaska income by approximately $140 million (per $100 million of reduction). Because the PFD cut results in a greater reduction in overall Alaska income, the PFD cut has a larger adverse impact on the Alaska economy (measured by income) than raising sales taxes.
Indeed, looking up and down the chart, cutting the PFD has a larger adverse impact on the Alaska economy (measured by income) than any other option on the list. Continue reading