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A prescription for Alaska’s budget

Alaska’s budget has been cut so much during the past five years that it is hurting our economy and endangering our residents. Yet Gov. Mike Dunleavy referred to the past four years as “explosive growth of state government.”

Education funding — a state constitutional responsibility — is being thrust onto local governments to an extent that is unsustainable. The University of Alaska, statewide, has already cut more than 1,200 positions; this damages the university, its students and faculty in many ways including some, such as its leadership in Arctic research, that are not easy to understand. It also hurts local businesses that work with the university. In addition, when university employees leave Alaska, they no longer buy groceries, tires, gasoline, etc. in Alaska.

The governor says state expenses should not exceed state income. Yet he refuses to raise revenue, and our biggest expense is to give away money to Big Oil through production tax credits. In addition, every resident expects free services from the state and a bonus, measured in thousands of dollars, if one stays for a year. These are strange ground rules.

But it’s worse. Spending savings is foolish, so foolish that it couldn’t be resisted. The $15 billion of savings that our Legislature spent in the past four years deprives us of an annual income of $800 million in interest; this is like heating your house by burning the furniture and floorboards.

Here is a prescription that will treat our pathologic aversion to raising revenue. In part it consists of using our tax base as all other states do.

1. Raise our Alaska royalty and production taxes on oil from 12.5 percent to 30 percent.

2. Make our oil taxes competitive with rates in other states and foreign countries (see No. 1 above).

3. If Alaska pays industry for development of new industrial sites, Alaska should get ownership in the development to the extent of its payment.

4. Stop paying exploration costs for the oil industry. (Alaska has paid 85 percent of seismic exploration costs. The industry was happy to spend our money; no other government acts like this.)

5. Reinstate our state income tax, as it was, a simple percentage of what is actually paid to the IRS. Restart it with 10 percent of the federal tax. It is simple to calculate and to administer.

6. Triple our motor vehicle fuel tax. In 1960 our state tax was 16 percent of the price of a gallon of gasoline, now it is less than 3 percent. (Our motor vehicle fuel tax has not been adjusted for over half a century in spite of inflation; at 8 cents per gallon, it is by far the lowest in the nation. If it were doubled, it would be a dime less than the national average. By tripling it we would be still be at the low end of state gasoline taxes.)

7. Examine both royalties and taxes on mining. They are low, and foreign businesses and countries dominate the industry in Alaska now, taking the profits away from Alaska.

8. Certainly Alaska’s Legislature can find other ways to increase revenue rather than wait for oil prices to change.

We are now in the same place as the territory of Alaska was during the mid 1940s in relation to a valuable industry. We were blinded by employment provided by the fishing and mining industries but had unrealistically low taxes to pay for government. Democratic Gov. Ernest Gruening and Republican Sen. John Butrovich worked together to increase taxes on industry and to initiate the Alaska territorial income tax in 1948. The territorial tax became the Alaska state income tax, and it worked well for us until it was witlessly repealed in 1980.

Taxes are not the problem; if taxes were the problem, Minnesota, California and Massachusetts would be destitute while Alaska would be prosperous, but that is not reality. Avoiding taxes has cost Kansas dearly; let’s not follow the example set by Kansas.

Perhaps Gov. Dunleavy’s absurd budget proposal was actually a clever way for Alaskans to be jolted into the reality that citizens of a state have responsibilities to the state. We have seen the number of residents increase in Alaska during the past half century. Now we are asking that the residents become citizens.

Carl S. Benson is a longtime Alaskan and a retired professor of geology and geophysics from the University of Alaska Fairbanks.


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