From our Medium page: If Alaska is going to implement PFD cuts, then it should implement a state income tax also …

Source:  Institute of Social & Economic Research, “Short-run economic impacts of Alaska Fiscal Options” at III -9.

Publisher’s Note:  As readers of these pages may recall Alaskans for Sustainable Budgets also maintains a separate blog providing news & commentary on Alaska fiscal and economic policy on national website Medium.  The following piece appeared first on that website.     ______________________________

Let’s be clear on this to start. We oppose state income taxes.

We oppose them for the same reason that others will assert as well, because of the adverse effect on the Alaska economy and families.

But let’s also be clear about something else, if that is your reason for opposing an income tax, then you should have opposed the PFD cut as well. Why? Because, according to ISER’s March and October 2016 studies, cutting the PFD has a larger adverse impact on overall Alaska income and jobs — the Alaska economy and families — than an income tax.

Don’t believe that? Then go to the chart above taken from ISER’s March 2016 study, https://goo.gl/ZxR1Hw at III-9. The chart shows the estimated impact on income (left columns) and jobs (right column) of the various fiscal options. The so-called “new revenue” options are at the bottom, outlined in red. The larger the number, the larger the adverse impact on the Alaska economy of pulling that particular lever.

The lever that, if pulled, has the largest adverse impact on the overall Alaska economy — both from the perspective of jobs and income? Cutting the PFD. An income tax finishes behind, in second place (a sales tax finishes even behind that).

But the PFD cut also has another, even more insidious, adverse effect that an income tax doesn’t. It increases state poverty and income disparity, both serious economic and family (as well as public safety) concerns as well.

Using the numbers developed in ISER’s March study, while a PFD cut of $650 million reduces the discretionary income of the highest 10% (by income) of Alaska households by only 0.6%, it reduces the discretionary income of the lowest 10% of households by a staggering 21.45%.

And according to ISER’s October study, https://goo.gl/iuTjv2, just the one step of “reducing the PFD by $1000 [which the Senate’s PFD cut bill (CS SB 26) effectively would do] will likely increase the number of Alaskans below the poverty line by 12–15,000 (2% of Alaskans).”

An income tax does neither of those.

So, if you truly are concerned about the impact of government economic action on the Alaska economy and families, you should oppose the PFD cut as well. If you don’t, then something else is going on with your position.

But let’s step beyond that for a moment. IF there is going to be a PFD cut, as many have urged, then what is the right overall economic policy.

Frankly, it’s the approach of combining the PFD cut with an income tax proposed by HFIN.

Why is that? Because by reducing the level of the PFD cut required to provide the same amount of so-called overall “new revenue,” coupling a PFD cut with an income tax both reduces the negative effects of a PFD cut on overall income and jobs and offsets at least to some degree the adverse effects of a PFD cut on poverty and income disparity. An analysis submitted Monday (March 27, 2017) in the course of the HFIN hearings focuses directly on the latter issue. “Assessing the Distributional Consequences of Alaska’s House Bill 115 (Version L),” https://goo.gl/eqvxmh.

And combining a PFD cut with an income tax also has one other important motivational effect. Combining the two engages those who otherwise are content to let elevated government spending levels continue, as long as they are paid for with PFD cuts (i.e., largely by middle and lower income Alaskans), but become irate when it involves “their” income, in the process of identifying and advocating for spending cuts.

Jay Hammond hit this latter point dead solid perfect when he said the following (sorry, Lance/Cathy, but it’s not bad to quote even “dead” people when they have a better grasp on the situation than the living):

… the best therapy for containing malignant government growth is a diet forcing politicians to spend no more than that for which they are willing to tax.

Why is that? Because those who pay the tax usually make up the bulk of a legislator’s donor list. While those donors may easily dismiss “malignant government growth” when it’s being paid for by a cut in the PFD (because, after all, it only makes up a fraction of 1% of their overall disposable income), they won’t when it hits their pocket book directly and with more impact.

So, let’s be crystal clear again. We oppose state income taxes.

But IF we are going to start down the road of PFD cuts, then we should have an income tax that goes along with it. It makes a bad economic decision better, by reducing the adverse effect of the final, combined package on the overall Alaska economy and families. And it focuses everyone’s attention on government spending, something that is missing now.