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Cheap Oil's First US Casualty: Alaska Forced To Tax Personal Income For First Time In 35 Years
With sadly ironic timing, we noted just last week that the blowback from "unequivocally good" low oil prices was set to cross the border from an increasingly suicidal Canada, and so, as AP reports, it appears Alaska is facing the toughest of times. As oil prices make new cycle lows, Alaska Gov. Bill Walker has called for the state's first income tax in 35 years in order to close a $3.5-billion-dollar deficit the state is carrying. Alaska is currently the only state that does not have a state sales tax or personal income tax, having relied on oil income but, as Walker tweeted, "now is the time for Alaskans to pull together."
Alaska is one of seven states without an individual income tax, and it’s the only state to have repealed an existing income tax, according to the Tax Foundation, an independent tax policy research organization.
- States with no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming.
- States with nearly no income tax: Tennessee, New Hampshire
In 1980, after oil began coursing through the pipeline, the Legislature voted to repeal the income tax. Two years later, the first dividends were paid.
Alaska has long relied heavily on oil revenue. In recent years, it provided about 90 percent of the money available for lawmakers to spend. That’s down to about 75 percent, the state Revenue department says.
But, as daily oil production has dropped to 500,000 barrels, and after the recent crash in prices, the state relied on savings to cover about $3.7 billion of its $6 billion budget last year, so this 'tax advantage' will soon change, as AP reports, Alaska Gov. Bill Walker is proposing instituting a personal income tax for the first time in 35 years as the oil-dependent state looks to plug a multibillion-dollar budget deficit amid chronically low prices.
In laying out his budget plan Wednesday, Walker also proposed using the fund that provides annual checks to most Alaskans to generate a stream of cash to help finance state government. The plan would change how dividends are calculated and mean lower checks, at least initially — with 2016 payouts about $1,000 less than this year’s.
Alaska isn’t alone among oil-producing states to experience hard times as oil prices stay low. But unlike states like Texas or Louisiana, Alaska has few other industries to make up the difference.
Walker’s proposal also includes:
- Adding a dime to every drink of alcohol and $1 per pack of cigarettes.
- Additional budget cuts.
- Changes to the oil tax credit system, a big budget item.
- Increases to industry taxes including mining, fishing and oil.
The administration says the goal was to spread the burden as widely as possible and that even with the proposed increases, the tax burden on individual Alaskans would be among the lowest nationally.
Alaska has been using savings to balance its budget but is blowing through its reserves at an estimated rate of $10 million a day. The state has been warned its bond rating could be lowered if it doesn’t do more to address the deficit. A hit to the credit rating could increase the state’s cost of borrowing and make it harder to finance a major gas project that Walker sees as critical to the state’s financial future.
Walker's proposal includes a personal income tax - last levied in Alaska three-and-a-half-decades ago - of 6 percent of federal taxes, or an average of 1.5 percent of total income, which would raise a projected $200 million.
The Alaska Dispatch News reports that Wielechowski, the East Anchorage Democratic senator, argued that Walker’s plan was “very regressive” - it would have a disproportionate impact on Alaskans with lower incomes, while leaving the state’s big oil companies largely unscathed.
“They are probably popping champagne corks in London and Texas over this plan,” he said in a statement, referring to the headquarters of Alaska’s biggest oil producers.
In a phone interview, Wielechowski said his preference is to increase taxes on oil companies and spend savings while waiting for oil prices to go up.
The reduced dividend, combined with the new income tax would have a big impact on his constituents, he said.
“It’s about a $5,000 hit for a family of four” with a $50,000 annual income, he said. “Is the Legislature going to vote to whack people’s Permanent Fund dividends in half?”
Having taken to Twitter to call for support for his raise-taxes-and-slash-spending plans, Walker faced a 'mixed' response...
"Alaska government is lazy," wrote Alex Rivera. "How could they not have seen this coming? How incompetent can you be?"
"Do what is best for Alaska," wrote Alexandria Miles. "We support you."
Why is this happening? As we noted last week,
Simply because the price of a commodity has dropped to a third of what it was just over a year ago, and the shocking impact has been a paralysis of every aspect of financial, economic and social life, first in Alberta, and soon everywhere else across Canada, as the local recession (on its way to a depression) spreads across the country and eventually crosses the U.S. border.
And cross the border it has.
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"Do what is best for Alaska," wrote Alexandria Miles. "We support you."
Much more dangerous than the politicians themselves, are those who wish their thoughts and actions be done for them.
"Alaska is currently the only state that does not have a state sales tax or personal income tax, having relied on oil income..."
Not so: no sales or income tax in New Hamphire.
But the property taxes!
I could write a dissertation on all the details, but the short version is the state is on a long, slow road to becoming a territory again. Alaska is 17% of the surface area of the US and has less than a million population for the whole state. You just can't tax that small of a population/industry base and get anywhere.
It was still very much like a territory before oil and once the oil is gone, it is back to a harder way of living for whoever stays. For a good read on the single resource that underpins modern living in Alaska, see The Last Alaskan Barrel (the book)
All kinds of new taxes are just going to speed that process up. Alaska is a very expensive place to live (cigarettes where I live are already TWELVE dollars a pack, gas is well north of THREE bucks a gallon, and milk is SEVEN bucks, property and property taxes are prohibitively expensive, etc). The state has many citizens that are retired from the state (one of the least funded pensions out there) or directly benefit from the spending of state dollars/budget expenditures. And on top of all that, health care costs are the highest in the US (and the state workers have pretty much 100% paid benefit plans - which are destroying the budget - something that doesn't get much discussion).
The state government, like many governments, are in the business of spending OPM. Alaska is no different. And the money is going to run out - one way or the other. And the budget issues for next year is going to be VASTLY worse than the 3.5 figure trotted out.
Regards,
Cooter
Alaskan Pop. per http://quickfacts.census.gov/qfd/states/02000.html
736,732 in 2014
710231 in 2010
Even though it's a growing place it is still easy to put 20 miles between yourself & your nearest neighbor.
Can't wait till I win the lottery and retire to AK!
@Seer - yes the rates are higher on average. But the assesments are not, at least once you are outside the Seacoast / Salem to Nashua / Upper Valley bubbles. Plenty of locations with total tax bills of about $1,500 for a good house and some land. Add in the lack of income or sales taxes, and you've got a very small total tax bill across all lines.
Bullshit!
I own a house in Lempster, far away form the Seacost. Taxes $1800/year.
The house has potential, but has no working windows, no water, no interior walls, it's not mortgagable, nor is it insurable. It's probably worth about $35,000 and then only if a buyer has cash. Dumpster (that's what some call that town) assesses it it $75,000 but there is no way it would sell for that.
That's taxes at full sales value total paid every 20 years.
I own a triplex in Keene, NH, far away from the seacoast.
Taxes = $8500/year. Taxes = 5.6% per year. Horrid.
Lempster is about as far away in the boonies other than the extreme North.
Find me a house with only $1500/year taxes, maybe it exists but I have yet to see it.
There is no free ride. It is axiomatic that an empire in decline eats its own one way or another.
Why is income tax the go to solution for a budget gap?
What spending is being cut?
Why not a sales tax? ( makes paying it voluntary...)
Yup, NH has no sales tax, nor any income tax.
Of course, a small, run down piece of shit house has a property tax of $3-6,000.
There is no free lunch.
Consider that you own a million dollar house and make 10 million a year. Tax = $15,000. So your tax bracket = 0.0015 (much less than 1% of income)
Let's say you are a unemployed widow with a $200,000 house: Taxes = $9,000/year. Your tax rate = infinite (100%+)
Real fair, eh?
So the world's most traded commodity can lose 65% of its value in a one year period on the slightest of drops in demand? Sounds like an efficient market to me!
US produces about 12.5 million barrels of oil and its equivalent fuels. The about $80 fall in oil is costing America over $1 billion a day. So there have many US casaulties in Obama's war on oil to hurt Russia.
US uses about 20 million barrels a day and must import about 7.5 million barrels a day.
Not costing me. Only "costing" people who thought idiotically that the artificially high price of oil would last forever. Boo Hoo!
Hell, maybe we should ask these geniuses from the gun thread what the "normal" price of oil is?
Care to chime in Anopheles or
Bunghole?
"So there have many US casaulties in Obama's war on oil to hurt Russia." Another short-sighted Pary Pussy statement! How about this one:
"Drill baby drill!"
Folks can't have it both ways.
As noted in the article, how the hell couldn't they have seen this coming?
Why not tax all the clone dykes in Alaska?
good luck
"Alaska has long relied heavily on oil revenue. In recent years, it provided about 90 percent of the money available for lawmakers to spend. "
So let me get this straight. The people of Alaska, who normally get an annual stipend courtesy of the oil companies will now get that cut and taxes will be raised just so that law makers will have plenty of money to spend...., Sounds fair.
Why they don't just cap government spending at 5% GDP right in the constitution I'll never know.
Alaskans need to get used to Sotero's "Yes we can" economy. They fell behind with those free stipends former politicans gave them.
It's the result of what was always to come of a growth-only economy. Exponential function, the education of which is going to be really painful...
why not make it voluntary? Pay tax on your income if you feel obligated too and wish to help. If you feel like mandatory coercive tax on your income is immoral opt out!
not sure if this is 100% accurate, trying to find out but someone flashed me:
Active Shooter Reported at Arkansas State University
Same here on my Twitter feed. Man in van.
Trump wins.
Actually, I like $1.69 gasoline. What's the problem?
Sarah Palin Come Back!!!
So by trying to take down Russia. Obama took out Alaska !!
How about cutting the government down to whatever level is needed for the fucking budget !!!!!!!!
Ahahah ho ho ho ho.. HEY LOOK everybody he said "budget". Ahahah Lol that is so funny..
he he he.. "snicker"
fart.
Income sucks. Compensation is much better.
LOL!
but, but, Wall street guarantees perpetual growth, is!
LOL x's 2
Mo rons
What'a you bet they have a automatic increase in their budget just like the feds. Gotta get them annual raises for not doing their job somehow.
Wish that more people could understand that it's this perpetual growth paradigm that's at the core of our failiings.
Alaskans get to fight global warming and arctic drilling at the same time - with their wallets!!!
http://www.dailymail.co.uk/news/article-3354577/Oil-slump-forces-Gulf-ta...
Oil slump forces the Gulf to tax its citizens for the first time: Six countries including Saudi Arabia to introduce VAT as revenues plungeJust bringing the ultimate revolt against the vile murderous Saudi elite that little bit closer. It sure sucks when you pay out to quieten a potentially restless populace, then the money starts to run out.
Not in support of the "vile murderous Saudi elite," but even if you had them all swinging from lamp posts the population would still be facing the issues of declining revenues and increasing demands. I doubt that the masses there, or anywhere else for that matter, would magically alter their thinking once their oligarchs are dispatched (and likely new ones on the rise).
It's the end of growth.
2014 article ties the pieces together very well.
http://www.theguardian.com/business/economics-blog/2014/nov/09/us-iran-r...
Alaskans need to be punished for voting stupid, very very stupid people.
BTW AK residents still buying their diesel from Russian ships because the US is too lame to allow an American delivery?
Time for Alaskans to move to New York or Washington.
Time for Alaska to secede to Russia. Flat tax rate FTW.
It would be ironic if some mysteriously funded NGOs appeared promoting an end to corruption and regime change. It would be worth doing just for the lulz.
Take some of the oil payments from the residents and transfer it to bloated government?
Well I NEVER could have imagined that happening!
This is a correlation that I don't think most people understand. And also a reason why those that currently mock those that do not own a home will soon be changing their minds. When the markets and economies crash where will local governments find the greatest source of revenue by increasing taxes? Property tax. So expect your precious home that you really only temporarily lease from your sovereign slave owning landlord will be taxed to the hilt.
And since the market will have crashed again by then you won't be able to unload your Albatross from around your neck.
Sure they might start with personal income tax and work there way up to property taxes. But it will get to big property tax increases soon enough until you're broke and homeless.
There's still time to work on pushing for a real global financial solution that eliminates the criminals from the equation. And not just switch over to the next level of global debt based fiat slavery. Feel free to contribute your efforts any time.
Where do you live – a state park?
As soon as the tax man cometh, rent is getting jacked sky high.
I think that you may want to add to the equation that the wealthy (keep in mind that the Banks own a LOT of properties) are the big landowners. They control politics.
At a point in time there won't be the ability to pay tax collectors. Why would anyone put themselves in front of a firing squad?
The entire fucking paradigm is going to collapse. It'll come down to as it always has: all you have is the land that you can hold on to; don't have land? odd man out!
BTW - I argued with folks that property prices WOULD come down. This was pre-bubble pop. I sold before the blow-off. I bought while folks were telling me that property taxes would only go up. My property taxes went DOWN (yes, they've bumped up, but on the whole I've been flat).
They'll always have reality TV shows to keep the economy going.
Yeah but we need a new pipeline anyway!
Forced to tax? The poor babies.
Too bad they couldn't be forced to shrink the fucking useless "government".
how about we just nuke opec and get rid of the excess pumpers...solves the immigration problem too
Look up: Texas Railroad Commission (you'll understand its structure and how OPEC came to be).
Anyway, I suppose OPEC could say that the excess money printers should be nuked and that their "immigration problem" (US military) would also get resolved. If the US wasn't cranking the printing presses then the high-cost energy producers that have been bankrolled using such cheap money (US shale, Canadian tar sands- Canadians are indirectly subsidized through US policies on this one) would be out of the markets.
Fuck'em, everyone needs to just say "fuck you, we ain't paying no more stinking taxes".
35 years ago was 1980.
So, let's see if I understand this correctly.
Oil is around $38 to $40 per barrel, and the state of Alaska needs to reinstate personal income taxes?
Why did they not do that when oil was $10 per barrel ca. 1998, or $35 per barrel ca. 2008?
http://inflationdata.com/Inflation/Inflation_Rate/Historical_Oil_Prices_...
http://www.nasdaq.com/markets/crude-oil.aspx
And it will never be revoked.
If you made alcohol legal in the inuit villages you would receive millions of dollars in taxes...well, you'd get your taxes back from them.
Yeah, but what about those cub and maule drivers delivering the Smirnoff in the plastic and the PBR...have you no sympathy ?
Once the politicans get tax money from their citizens they'll never repeal it.
Those crazy tax and spend "Independents".
How the FUCK does a state with fewer than 800K residents rack up a 3.5 BILLION deficit.
LMFAO.....
1 word: SCHADENFREUDE.
Nothing like financial hypocrites getting their kumuppins.
As usual, government always spends everything it has, then spends some more. Alaskan citizens should revolt, i.e., not pay the taxes, storm the state house, throw out the governor and any of the elected reps who support this tax bill.
Seriously, a tax revolt is exactly what is needed to awaken the people in this country. Of course, MSM will not televise it, or, if they do, will paint the tax revolutionists as terrorists and/or unAmerican.
How did that go...
When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.
The next big tax hit will come to governments at all levels because most homes are taxed on their market value.Most jurisdictions for example also have the education tax built right into the municipal property tax.That's the way they con elderly people who's kids are grown up and gone but are still getting shafted.When the home prices drop into the cellar you can expect the local and State/Provincial tax revenue to dry up just as the majority of homeowners also get laid off from their oil industry related jobs.Cities and small towns then lay off their workers too. The manufacturing infrastructure sector for oil takes the biggest hits(pipe shops,steel mills,tank and fabrication,processing shops etc.) as exploration drys up and credit quality of junior oil firms sours and they all declare bankruptcy.Already we are seeing it play out at the bottom of the food chain.
State employee unions are the biggest problem. Defined benefit pensions, free healthcare for life, no social security tax, etc...
The next biggest problem is the legislators who can't say no. Alaskans voted to limit the legislative session to 90 days, they've never come close to finishing business in that time frame. They take a break in the middle to attend conferences all over the world and then declare emergency sessions that last an extra 30-60 days. The whole while they get tax free per diem, even the legislators that live in Juneau, can you imagine getting -$200-250 per day housing per diem to live in your own house and eat your own groceries? Plus a lot of these douchebags sleep on the couch in their offices or share a flophouse with half dozen other legislators(think middle age frat house).
The federal government and big oil has been very good to Alaska, unfortunately we've boxed ourselves into a corner budgetarily and the money has run out. Going cold turkey is going to be tough as the two rich uncles have cut off the inheritance. The old salt, the more you make, the more you spend is apropos here.