Out There

The “Make Everyone Mad” Fiscal Plan

Posted in politics by Pete on March 19, 2015

The state of Alaska is currently in an economic free fall due to a precipitous drop in the price of oil.  This seems to happen every 15 years or so and the symptoms are becoming a little familiar.  Right now we’re at this part of the ride:

roller-coaster-scared

To take the metaphor a little further – the folks who can see what is ahead are FREAKED, while a bunch of other people are still just “enjoying the ride” without a clue about what lies ahead.  I got this pic from here:  https://bettiesparties.files.wordpress.com/2011/03/roller-coaster-scared.jpg

Or if you prefer:

Anyway the Alaska Dispatch has produced a 3-part take on the current fiscal situation that gives a good overview of the historical context of our situation, and the difficult political realities that surround any of the actual solutions.  The piece by Dermot Cole includes these quotes:

Legislators and the Parnell administration signed off on the 2015 the budget last spring, portraying it as a model of conservatism, fully confident oil would stay near $100 a barrel.

While they ran for office last summer and fall, no one warned of oil prices in the $55 range or that a collapse was coming.

The state budget analysis did not include oil price predictions below $90, which seemed reasonable at the time. It’s apparent now they were not.

It’s no surprise some lawmakers have invested more time in marijuana regulations and ending daylight saving time than in preparing for the likelihood that, if oil prices don’t rise, the next step will be a giant one off the fiscal cliff.

It’s easier to fume about federal overreach or hope the problem will just go away than fill a budget hole that amounts to about $5,000 per Alaskan per year.

$5,000 per Alaskan per year!!  The actual total figure is $3.5 billion.  To put that in some context, a state income tax would raise something like $350 million.  And no amount of cuts gets the state anywhere near a balanced budget.  At this point, really nothing is being done other than lots of small cuts that probably are penny-wise and pound foolish in the long run (from that last link, cutting the parents as teachers program seems the dumbest given that the program costs well under $1m per year to operate).

“Some suggest elected officials will wait until the state falls over the cliff into the ‘fiscal gap’ because only then will enough elected officials believe they have constituent support to access previously unused revenue sources such as the Permanent Fund earnings or to reinstate a personal income tax,” Commonwealth North said in a 2007 report, reflecting a sentiment shared by any number of Alaskans over the years.

And I believe that those elected officials will NOT pursue the income tax very seriously, instead just taking money from the permanent fund, which amounts a massively regressive tax on the poor.

The UPSET plan

Sometimes the only fair plan is the one that makes EVERYONE mad. While it is true that taking from the PFD is regressive and hurts the poor the most, others will argue that an income tax is unfair to the rich and hardly affects the poor at all. Which is why we need BOTH.  And more.

  • Understand that we all have to pitch in to work toward a better future for our state.
  • Personal income tax – The income tax as it existed before I believe was a simple 10% of whatever you paid the feds that year so it takes about 30 seconds to figure out.  I believe this would be about $350M, and even more importantly would get people more invested in state government instead of just viewing everything as an automatic benefit without cost.
  • Sales Tax – Add a 5% tax statewide on everything other than food.  No idea what this would raise – probably something similar to the income tax.
  • Earnings from the permanent fund.  Use say 20% of the fund earnings for current year spending (40% to the fund, 40% used as payouts).  This amounts to more than $1B most years.
  • Take 15% from the budget of every state department/program, rather than picking and choosing which to eliminate and which to leave unscathed.  I know some programs can’t be cut for legal reasons so not sure what this would save – probably something just under a billion.

The only really fair way is to hit all of us at once rather than trying to get it all from one source that affects one population disproportionately more than the others.  This is all just “back of the napkin” stuff but probably makes our 3.5B deficit something more like a $1b deficit.  Of course you are free to quibble with the particular numbers but you get the general idea.  Obviously we all hope the price of oil goes back up, but until then something should be done.  Now.

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