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The Effects of State Revenue Options on Alaska Households

The Effects of State Revenue Options on Alaska Households. Institute of Social and Economic Research University of Alaska Anchorage January 27, 2004. Trends in state revenues and spending Major options for closing the gap The PF Endowment PF Dividends Sales and income taxes. Overview.

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The Effects of State Revenue Options on Alaska Households

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  1. The Effects of State Revenue Options on Alaska Households Institute of Social and Economic Research University of Alaska Anchorage January 27, 2004

  2. Trends in state revenues and spending Major options for closing the gap The PF Endowment PF Dividends Sales and income taxes Overview

  3. How has state spending changed over time? Source: Legislative Finance

  4. How has real, per person state spending changed? • When we adjust for inflation and population growth, the state’s buying power (excluding PFDs and federal funds) has declined 14% since 1992 Source: ISER

  5. Why is there a budget deficit? • 80% of unrestricted revenues are from oil • Oil revenues are declining Source: Legislative Finance and Alaska Department of Revenue

  6. 2,500,000 NPRA 2,000,000 Other NS Northstar Colville R Badami 1,500,000 Duck Island GPMcIntyre Barrels per Day Milne Pt KRU.IPA+Sat PBU.IPA+Sat 1,000,000 Cook Inlet 500,000 0 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019 Year Why are oil revenues declining? Oil Production 1969 - 2022 Prudhoe Bay Kuparuk Source: Alaska Department of Natural Resources

  7. How does the state cover the deficit? • The budget deficit has been covered by funds withdrawn from the Constitutional Budget Reserve Fund. • The CBR has under $2 billion. Source: Alaska Department of Revenue

  8. What can we do about the deficit? • Budget cuts and user fees • Economic development • Business or excise taxes • Permanent Fund earnings • Sales or income taxes

  9. The $900 million deficit is 1/3 of the state General Fund budget On average, every $1 million in state budget cuts will cost: $900 thousand in federal funds; 10 state and local government jobs 8 private sector jobs. What would happen if we just cut the budget? Source: ISER

  10. Other than oil, Alaska resource industries are small and marginal Will economic development solve the problem?

  11. How much does a new private sector job cost government? • “Alaska disconnect”-- new jobs cost state and local governments more than they generate in tax revenues.

  12. What about using earnings from the Permanent Fund?

  13. Percent of market value

  14. Realized income v. market value Volatility: Percent change in value from year to year Annual market value – per POMV payout formulaAnnual realized income – per current payout formula Source: Alaska Permanent Fund Corporation

  15. Built-in inflation-proofing averages 3% 5% limit on spending Fund will continue to grow from deposits of new oil and mineral revenues POMV features

  16. What will happen to dividends if we adopt the POMV formula? Source: Alaska Department of Revenue and ISER

  17. How much would households lose with dividend reductions?

  18. To fill part of the fiscal gap To protect the dividend To cure the “Alaska disconnect” The broader the base, the lower the tax rate Stable, predictable revenue Reasons for a broad based tax

  19. How much would households pay with a sales tax? Median household income

  20. How much would households pay with an income tax? Median household income

  21. Comparing dividend reductions, sales and income taxes Median household income

  22. Tax burden as % of income Sales Tax Income Tax

  23. Tax Burden by Household Size

  24. How much would non-residents and the federal government pay?

  25. Comparing dividend reductions, income and sales taxes raising the same amount of revenue: Income taxes would keep more money in the Alaska economy A majority of Alaskan households would pay less with income taxes Retirees and large families would pay less with income taxes The in-state economic multiplier would be higher with income taxes Summary of Economic Impact

  26. For comprehensive information, look for ISER’s Citizen’s Guide to the Budget Web site:http://citizensguide.uaa.alaska.edu/ For current budget numbers see the Legislative Finance Web site:http://www.legfin.state.ak.us/ For revenue projections and analysis see Revenue Sources at:http://www.tax.state.ak. us/SourcesBook/SOURCES.htm For a copy of this presentation go to: http://www.iser.uaa.alaska.edu/ Where can I go for more information?

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