Story last updated at 2:55 p.m. Friday, April 12, 2002

Income tax better than tapping the fund
By Don Ronda
Point of View

Many members of our Alaska State Legislature are loudly proclaiming a severe shortage in the state's revenue stream, yet trumpet the need to "cut government waste." Unfortunately, as a result, a number of government services are suffering severe funding shortages, essential services are being reduced and the quality of Alaskan life is going down rather than up.

Others proclaim opposition to "income taxes" and favor tapping and/or capping the Alaska Permanent Fund to counter this funding deficit. Legislators are extremely wary of imposing taxes, particularly immediately prior to an election. Some therefore claim that by utilizing the permanent fund, new taxes may be avoided or minimized.

Alaskans are aware of the budget shortfall and are willing to pay an equitable share of the cost of government. The problems arise when determining what that equitable share is.

If the permanent fund is taken from Alaskans, how is this different from taxation? There really is no difference except that by so doing, the public's control of the fund, the property of each Alaskan resident, is withdrawn from the electorate and taken by the Legislature. With unfettered legislative access the permanent fund becomes an ideal source for political spending and past history predicts that in such manner it will inevitably be depleted. This is opposite to the public's repeatedly expressed wishes.

The Alaska constitution was amended to place ownership of Alaskan mineral rights in the hands of all Alaska residents. Government and all residents benefit.

What are the realities of the permanent fund? Annual revenues decrease as a resource is depleted or as markets fluctuate but the cost of services only grow with population increase and inflation.

Already 85 percent or more of Alaskan oil revenues are funding state government. Only 10 percent to 15 percent of these annual oil revenues are retained in the permanent fund. The fund accumulates over the years and is invested for profit, mostly outside Alaska. These investments create income for the fund which, by means of the annual dividend, are brought into Alaska from Outside, creating a very real annual boost to the Alaskan economy.

The fund's principal however continues to grow.

Not all of the fund's annual income is distributed each year, with 57 percent of these profits retained for future generations and 43 percent distributed in the form of annual dividend checks which provide a major economic boost during the off season of tourism and commercial fishing.

It is the dividend that gives every Alaskan resident a stake in determining the fund's future and thus far has protected it from political raids. Fund growth has continued over the years because of the very real threat and practice of removing from office elected officials attempting to commandeer any part of the fund. But again, another "raid" is being attempted.

A major fault in using permanent fund money in lieu of taxes is that by taking the dividend from the electorate, electoral control is lost. The poorest recipients pay the greatest percentage of their income to the government. This is an "alternative" to a tax? The wealthy hardly notice the loss of permanent-fund income whereas it often makes up a major portion of the cash income of rural or subsistence-dependent residents. This is unfair to say the least.

Sales taxes are being promoted as more equitable. Such is hardly the case. Besides, sales taxes have thus far been reserved as a tax source for individual cities, boroughs or other organized areas and most areas outside the Anchorage Bowl already use sales taxes as a major funding source.

There may be reasonable tax revisions, which should be considered, but none have the impact of the income tax. Many believe that abolishing the Alaska Income Tax was the greatest legislative error committed since oil revenues began to flow.

A major advantage of the income tax is that it applies to all citizens earning income in Alaska, whether residents or not. Fixed percentages applied to federal income taxes simplify tax preparation.

It is also by far the most equitable form of tax in that many of the people creating the need for seasonal public services are non-residents; employed seasonally in occupations which attract other nonresidents to Alaska for the summer season. At the end of that season much of this income is removed from the state and spent in other parts of the country or the world. This process exports cash from Alaska's economy.

Only full-time resident Alaskans, who had the sense to save a portion of their natural resource income by supporting the establishment of the permanent fund, collect a dividend from that fund. This can be used as these residents desire.

Without the dividend the October boom in the Alaskan economy ends. How will this effect our economy? Reducing the income tax bite is another use. Doesn't that make taxes more palatable? Left alone, the fund will continue to grow, as will the annual dividend.

The alternative is that the permanent fund, without electoral control, will be depleted. Capping the dividend may prolong its life a few more years but when it is gone there is no alternative to new taxes, and there's nothing left to pay them with.

If you have opinions on this let your elected representatives know about them <> NOW!

<> Don Ronda, a 46-year resident of Alaska, with the last 40 years in Homer, has served two terms on the Homer City Council as well as service on various local governmental commissions and committees.