State of the State: Alaska
“Alaska is in the midst of the gravest fiscal crisis in state history.”
It’s Groundhog Day in Alaska. Similar to Bill Murray’s famous movie, Alaskans are trapped in the same time loop. The Last Frontier faces an alarming $3 billion budget deficit, and Governor Bill Walker still proposed a series of tax increases, including bringing back the economically damaging personal income tax. Clearly, Alaskans face difficult decisions, particularly how to resolve a budget deficit estimated at $4,000 for every man, woman and child. Governor Walker deserves credit for some thoughtful spending reforms; but his proposed tax increases, especially the personal income tax, will only add to Alaskans’ fiscal burdens.
Governor Walker discussed spending reductions. For example, this session, Governor Walker will introduce legislation to temporarily freeze the salaries of some state employees after already reducing his own salary by one-third. Spending reductions are a step in the right direction, but Alaskans deserve a more innovative budgeting system. Instead of business-as-usual budgeting and across-the-board cuts, priority-based budgeting focuses on the essential functions of government. In fact, according to the ALEC Center for State Fiscal Reform study, The State Budget Reform Toolkit, Washington state used priority-based budgeting in 2003 to close a $2.4 billion deficit, without resorting to burdensome tax increases.
Unfortunately, Governor Walker’s proposed tax increases would not help Alaskans thrive. The governor continues to support his failed tax increase proposals from last session, including reinstatement of the personal income tax and an unspecified increase to the Motor Fuels Tax. A possible personal income tax, however, is the biggest threat to the hardworking taxpayers of Alaska. The obstacle to economic opportunity posed by such a tax is perhaps why Alaskans repealed it over thirty years ago. As research from Rich States, Poor States ALEC-Laffer State Economic Competitiveness Index demonstrates, the 11 states that have adopted a personal income tax in the past 50 years experienced troubling deterioration in economic performance. In every case, their share of total U.S gross domestic product, total U.S. population and total U.S. state tax revenue declined.
These proposed tax hikes, especially a personal income tax, will only hinder economic progress in Alaska. A renewed focus on spending reforms, on the other hand, is a step in the right direction. Overall, Alaska’s $3 billion budget deficit is a failure of conventional budgeting practices and overspending. Budget solutions outlined in The State Budget Reform Toolkit can help deliver real results for Alaska families.