Alaska – Tax Itself Back to Prosperity or Put State Government on a Diet? 

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Today’s Key Takeaway: “The solution to Alaska’s fiscal woes is a constitutional spending cap. Put state government on a diet. HJR2 is a proposal that would limit government spending to a fixed percentage of Alaska’s private sector output.”

Opinion: This Red State Could Tax Away Its Prosperity
Stephen Moore, The Daily Caller, May 10, 2023

Alaska is America’s Saudi Arabia when it comes to bountiful energy resources, but thanks to Biden’s anti-drilling and anti-mining policies, energy production in the state is way down. And because more than two-thirds of the state’s tax revenues come from the oil and gas industry, revenues are down, and the state is facing an enormous budget deficit. Now this red state is considering the worst possible fix: enacting one of the biggest tax increases ever seen in Juneau.

Remember, this is a state that has been so overflowing with oil and gas revenues that each year it pays a “dividend” check of several thousand dollars to each Alaska resident.

The tax increases under discussion include a new income tax, a new sales tax and a 40 percent rise in the fees charged to oil and gas producers. Somehow, the political class seems to think that Alaska can tax itself back to prosperity.

An income tax would be a killer for Alaska, as it is one of nine states today that imposes no tax on personal income. Adding one would shred one of its greatest economic advantages over other parts of the country.

An equally bad idea would be to impose new steeper taxes on the energy industry. Oil and gas producers are the state’s goose that lays the golden eggs. Oil and gas production account for almost half of all state GDP and tens of thousands of high-paying jobs. Moreover, the energy industry also foots most of the bill for the state’s 9% corporate tax.

Introducing a new oil and gas tax would be like Nebraska putting a new tax on corn or Idaho trying to pay its bills with a special levy on potatoes.

Some analysts say that the days of wine and roses in Alaska from the state’s oil and gas bonanza are long gone. Nonsense. Alaska has only skimmed the surface of its vast pools of energy. Oil drilling projects Willow and Pikka on the North Slope have bountiful resources and are critical for Alaska’s economy and America’s energy security. Half of the nation’s coal reserves are also way up north.

Any new tax on energy production would only discourage more drilling and mining and thus dilute the reserves in the dividend fund. This means that if Alaskans want those dividend checks to keep arriving every year — and they’ve become a very politically popular fringe benefit in Alaska — the state needs pro-drilling policies not an agenda that chases the industry out of the state.

Meanwhile, the fiscal problem in Alaska is on the spending side of the ledger. Amazingly, Alaska had the highest per capita state and local spending in 2020 at $17,374, followed by Wyoming ($15,641) and New York ($15,373). You have to be a real champion big spender to take on more per capita expenditures than even New York. Alaska’s per capita local and state spending is twice as high as Florida‘s — and the services are no better in Anchorage than in Tampa.

The solution to Alaska’s fiscal woes is a constitutional spending cap. Put state government on a diet. HJR2 is a proposal that would limit government spending to a fixed percentage of Alaska’s private sector output. It would have to be approved by voters next November.

The alternative for Governor Mike Dunleavy and most Republicans in the legislature is to raise taxes — which they campaigned against. This would be a “read my lips”-style betrayal to the voters — aside from being harmful to the economy.

The strategy needs to be to grow the private sector, encourage more oil and gas drilling, and shrink the burden of a state government that, like the Energizer Bunny, keeps growing and growing.