Progressive Income Tax for Alaska: A Proposal to Help Address the State's Fiscal Crisis
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Date
2020-12
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Abstract
Alaska has a projected budget deficit of $946 million in the coming fiscal year. The state’s main savings account has enough to cover the deficit this year, but doing so will essentially drain the account. The projected deficit balloons to $2.3 billion in the following fiscal year without any changes to revenue or savings. This fiscal cliff has been looming for years. Alaska has no statewide sales, income, or property tax and is heavily reliant on revenue from oil production, leases, and taxes, which make up around 90 percent of the state’s discretionary budget. Revenue is, therefore, heavily dependent on oil production and price, both of which can vary wildly. While Alaska has saved successfully in some years, it has generally been spending more than it brings in since 2012. No new substantial revenue streams have been created. Further complicating the issue is the existence of Alaska’s unique Permanent Fund, a fund created to invest wealth from oil production for future generations, and which has traditionally and statutorily provided dividends to Alaskans nearly since its inception. The fund’s earnings are theoretically an option to help cover state expenses, but the subject is ripe with political division.
This proposal discusses the problems that have led to the current crisis, attempted solutions in recent years, and the public and other stakeholders’ responses to these. It compares a progressive statewide income tax against other commonly discussed solutions: a state sales tax and Permanent Fund Dividends cuts. The proposal’s recommendation is for the incumbent Speaker of the House to introduce legislation for a progressive statewide income tax (similar to the structure of one that nearly passed several years ago) as a tool to help solve the looming deficits. It will not do so on its own.
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deficit, state income tax, Alaska, budget