Alaska Robotics

Death and Taxes

Wednesday, June 10th 2015 by Pat

“Things as certain as Death and Taxes, can be more firmly believ’d.”
     —Daniel Defoe The Political History of the Devil 1726.

I attended a dialog hosted by Governor Walker over the weekend, Building a Sustainable Future: Conversations with Alaskans.

This is me collecting my thoughts, sharing my impressions and attempting to expand the discussion. It may get a bit lengthy, feel free to skim or skip.

Day 1 – Friday, June 5th

The gathering was convened by Alaska Governor, Bill Walker and hosted on the University of Alaska Fairbanks campus which has historical significance as the location of our state’s constitutional convention.

There were about 200 people in attendance, ranging from Governor Walker’s transition team and staff to more tangentially affiliated folks like myself. How I rated an invite isn’t exactly clear but it was likely my keen understanding of Alaska’s fiscal situation.

I flew to Fairbanks on my own thin dime and was housed in Lathrop Hall on the university campus. We didn’t have hot water the first day and my roommate moved out almost immediately after meeting me. It really brought back some memories.

Friday evening’s events primarily consisted of introductions along with some sniffing around to see who else was in attendance.

A little too much ceremony and clapping for my taste, I was anxious to roll up my sleeves.

Day 2 – Saturday, June 6th

We were up for cold showers and hot breakfast at 7am and then into our first small groups for an exercise in frustration, cutting the budget.

This was my least favorite part of the weekend and it felt like the organizers created an intentionally difficult process for us to muddle through. The group sizes were big enough that we couldn’t just jump into a conversation and our facilitated discussion was primarily focused on how much we disliked the process.

Then we stuck some dots on things.

This whole introductory exercise resulted in very little meaningful discussion and the results were biased by participants who gamed the system by placing multiple dots. Gasp! Dotgate!

Off to a lumpy start, journalists had little of substance to report and were stuck delivering headlines like, “Budget conference ranks agriculture division, Pioneers’ Homes among ‘unnecessary’ services.

I probably would have just gone with, “Dots!”

I was feeling disenchanted heading into lunch. It was obvious that we were intended to fail, that cutting the budget by $3.5 billion was not the solution we were supposed to find. I felt like I was on a guided tour, that the game was rigged, and I suspected we’d round the corner at the end to find a tidy, predetermined conclusion.

I drew a bear in a funnel.

The afternoon session was when things started getting better. Brian Rogers, an excellent facilitator, acknowledged our frustrations and asked for us to stick with the process.

I don’t know how much changed behind the scenes but things went smoother from there out. The conversations evolved and the hot water started working.

Department of Revenue Commissioner, Randy Hoffbeck, leaned into the podium and looked almost gleeful as he made his presentation. He started out by debunking a few of what he referred to as myths.

Myth #1: We Can Cut our Way to a Balanced Budget
Myth #2: Higher Oil Prices will Save Us Again

Hoffbeck then moved on to a fairly comprehensive overview of revenue options ranging from “sexy” Powerball lotteries to not-so-sexy sales taxes.

The graph I found most interesting was of the the state budget adjusted for inflation and population. It revealed that we certainly are on the high side of spending but not by much, not by $3.5 billion. I think it would be illuminating to see graphs like this for each department of state government.

hoffbeck-real-state-budget

Hoffbeck also rolled out the main course, a revenue model showing the projected effects of the various proposed revenue plans.

Along the top was a dashboard of graphs to show depletion of state savings, projected budget vs. revenue and the projected balance of the permanent fund. There were estimates for dividend returns and big red highlights to indicate that the budget was unsustainable. Add a few more tax options, take away everyone’s dividend, throw in some tobacco taxes… the highlights turn green!

model

It’s fairly easy to get the green light but an economist next to me was quick to point out that this model only measured the government’s budget and didn’t give any indication of the effects of these changes on the state’s private economy.

Almost in answer, Dan Robinson from the Department of Labor stepped up with his presentation on all the pros and cons of fiddling with these different buttons.

The following graph from Robinson’s presentation shows how much each person pays in taxes in each state. I’m not sure why he used 2011 data but it’s still fascinating to realize how little we contribute in Alaska even before our dividends arrive.

tax graph

I went out that evening and had a beer at HooDoo Brewing. It was nice to unwind and visit with some friends. I also learned that our Space Weird Thing video made the front page of XKCD which was even better than the beer.

I should mention that there was also a presentation on right-sizing government but it followed lunch and I was in a food coma so I didn’t get much out of it.

Day 3 – Sunday, June 7th

Hot showers and cold breakfast, much better than Saturday morning.

Sunday was a lot of facilitated group work with the revenue model. Again, I would have preferred smaller groups and more freedom but I also wouldn’t have heard quite so many voices. There were two different pitches to endow K-12 education in my group alone.

We reported back, we had more speeches and more clapping.

I was frustrated early on that we might be led to water and forced to drink but the conclusions each person drew from the process seemed well varied while still pointing towards some compromise.

Overall, it was a good weekend and I met some ridiculously smart and talented Alaskans who are looking out for our future. Engineers, economists, teachers, fishermen, business owners, legislators, lawyers, union bosses, oil & gas folks and even a couple of the old boys who knocked together our state’s constitution.

There was one little black raincloud…

But we started a difficult conversation and it’s one we should all be having. How do we close our fiscal gap and get Alaska on track to a sustainable budget?

Developing a Tax Package

I think the governor is already in the process of developing a tax package, a delicate bundle of proposals that will land on the desks of legislators with the weight of an anvil.

I think the conversations we have over the next few months will shape this tax package and it’s important that we all voice our concerns, objections, hopes and grudging acceptance today. We should learn what we can now so we’re ready for the debate and the bloom of frustrating and misleading information ahead.

Income Taxes and PFDs

I haven’t had a chance to fiddle with the revenue model very much yet but I’m in favor of an income tax.

I once spoke to economist and architect of statehood, George Rogers, about income taxes and he said he regretted that the structure had been removed rather than just zeroed out. He knew we would need it again some day.

An income tax makes sense as a source of revenue that scales. Right now every person who arrives in Alaska diminishes the services we all receive. It’s like we have this giant pizza but people are starting to show up at the party and the slices are getting thinner every time a new friend walks in the door.

People gots to bring some pizza to the party.

It probably also makes sense to cap the permanent fund at a reasonable rate and then only adjust it for inflation each year. The Rasmuson Foundation is proposing a cap of $1,310, the average over the past 10 years. That number probably isn’t weighted for inflation but it’s a good starting point.

Taxing the Children of Alaska

The trick with the PFD is that any money we take out of the annual checks is essentially a flat tax regressive tax on all Alaskans. Including children.

What that means is that Ed Rasmuson would be forfeiting the same portion of his PFD as some little kid out in Nunapitchuk.

But… Entitlements!

I know it’s not really a flat tax if we’re just taking away the free money people are getting but that money has become a big part of people’s lives. According to Dan Robinson’s presentation, a lot of PFD money stays in the state and anecdotal stories of rushing out to get a flatscreen television are the exception, not the rule.

In Alaska we have some entitled people but we also have some very dependent people, they count on that check coming through in October so they can get through the winter… Heck, I’ve been that person more than once. I remember getting behind on rent, not having quite enough to pay back loans and in comes my PFD check to float the ship.

So, in order to keep the taxes more progressive, my proposal is to levy a tax on a percentage of Alaskan’s federal income and then roll PFDs into that state tax as a rebate. Much like the $300 we got from the Bush administration back in 2001.

Bonus points: As a rebate, the PFDs would probably be sheltered from federal taxes instead of increasing them.

Keep it Simple

Implementation is key to whatever is developed, there’s no reason our taxes need to be as obtuse as what you find on the federal level. Alaska should build something elegant and easy to use, a system where you don’t have to fill in address fields unless you’ve moved. A form where you fill in one field and all other math is done for you.

tax1

The state can start with the MyAlaska system or build something from the ground up but they should avoid rolling out on a flat tire like the Obamacare website.

tax2

Conclusion

I don’t really have a solid landing here. I just wrote and wrote and wrote and now it’s two in the morning and I’m sleepy.

If there’s any takeaway from all of this, it’s encouragement to download the revenue model and check it out yourself. See what conclusions you come up with and figure out how you want to be involved in this giant sized decision we all have to make about our future.


Edit: Rebecca Braun points out that I mistakenly said “flat tax” when I meant “regressive tax.”

A flat tax is a fixed percentage that everyone would pay, a regressive tax is a fixed dollar amount and much less friendly to poor people. Tax vocabulary expanded!

Rebecca also points out my example of a super rich person paying $100,000 in federal taxes is probably super confusing because most Alaskans will never come close to paying that amount.

4 Responses to “Death and Taxes”

  1. Pops says:

    Good work all, Thank you and so good to see Jack and Vic.

  2. […] published on Alaska Robotics. Reprinted with […]

  3. JW says:

    Great reporting Pat! this is the best coverage of the budget issue I’ve seen

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