Thread by @mattbuxton

The #akleg join fiscal plan working group is underway. On today's agenda: ISER Director Ralph Townsend with a presentation about the economic impacts of taxes and PFD cuts.

Watch: akleg.gov/includes/_play…
Docs: akleg.gov/basis/get_docu…

Townsend says people get fixated on the number whenever an economist is before them. He says the focus should be on managing Alaska's resources:
-Human capital
-Private capital
-Public infrastructure
-Public financial assets (the Perm. Fund)
-Natural resources

#akleg

He says government is in large part balancing the good things (roads, infrastructure, services, education, etc) against the negative effects (like taxes).

"Good policy does make a difference in the long run. ... But anytime we make a change, it has short-run costs."

Townsend: "We can’t be frozen in place that there are short-run consequences. ... they’ll be reduced overtime as people adjust to the new environment."

He compares it to short-term layoffs as an example that would be absorbed over time.

He also notes that uncertainty has its costs. It may be invisible because "We don't see the buildings that don't get built" but that it can be hard for private sector to invest when it's unclear where it'll go.

#akleg

As for new revenues, he says his recommendation is "broad and low." Broad so it raises revenue, low so it doesn't dramatically alter behavior.

Neighbor brought over a salmon so I've had my hands busy gutting and cleaning it. But been very interesting look at it.

Townsend went over regressivity vs progressivity in taxes, noting some taxes are flatter than they appear and some flat taxes aren't really all that flat.

He also notes that an income tax may discourage certain behaviors (as in, if I make too much $ I might not apply to others)

Sen. Hughes asks about outmigration following the establishment of an income tax.

Townsend knows what study she's talking about and notes that the study is pretty flawed. He also says taxation level is likely not gonna be the sole factor in location.

On later questioning, Hughes says that she doubts Townsend because she has heard from some individuals that they WILL move away from Alaska if an income tax is implemented. She says it's something worth keeping in mind.

Rep. Carpenter asks who we would want to move to Alaska.

Townsend notes that Alaska has a lot of in migration and out migration. He says it fluctuates based on economic opportunity with big booms driven in large part by oil industry.

#akleg

Townsend says the outmigration now isn't driven by a non-existent income tax. He says the PFD and potential of income tax aren't likely the main drivers of the current run of outmigration, but the overall lack of economic opportunity.

#akleg

Townsend warns that "there’s going to be a nationwide competition for talent."

He says the issue of migration isn't just about PFD and income taxes, but the availability of good jobs and many other factors.

#akleg

Also, man, I really mangled that fish. Hey! At least another opportunity to break out the smoker!

Kiehl notes Alaska significantly dropped its corporate incomes taxes by adjusting the brackets and asks if there's a corresponding increase in growth.

Townsend isn't sure about studies, but notes Alaska has the highest concentration of S corps/LLCs (which aren't taxed)

#akleg

Townsend returns to THAT study from ISER that compared various cuts to a dividend cut.

He says "the impact of a dividend cut is somewhat higher" but that it's a misrepresentation to call it significantly higher than the other options.

#akleg

Townsend says the higher estimated impact w/ PFD cuts is because "more people who are spending more of their income."

He says that the whole claim that ISER says PFD cuts are WAY worse than everything is overstating the case. "It’s significant but it’s not overwhelming."

#akleg

And here's the distributional impacts of the PFD cut. He notes that pretty much anything other than the progressive income tax tend to put a higher burden on low-income Alaskans.

#akleg

Townsend isn't super sure what the exemptions on that 4% sales tax are but notes he's pretty sure it includes food. The higher the exemptions, of course, the higher the rate has to be to raise the same amount of revenue.

#akleg

Townsend also warns against trying to craft a tax that targets tourists, noting it would create some unintended consequences. What happens, he asks, if you were to set a summer-only sales tax with car sales.

#akleg

Hughes asks if there are states w taxes on hotels.

Townsend says, yes, many. Lodging taxes are extremely common. 10% or higher, but notes that lodging taxes would hit Alaskans too... like members of the #akleg

Hughes suggests making it seasonal (which he JUST warned against).

Hughes asks if there's a tipping point where lodging taxes would discourage visitors.

Townsend: Taxes are not a tipping point thing.

#akleg

Townsend says taxes can impact behavior, but there's rarely if ever a magic number that would equate to a "tipping point."

Townsend is on a slide of short-run impacts of spending cuts. Shows cutting state jobs leads to the largest impact on total jobs.

McCabe seems confused: The slide seems to "Fly in the face of the conservative thought process" he says. "Why would spending cuts cost jobs?"

#akleg

McCabe wonders about the multiplier effect of private sector dollars. It's like 9 dollars for every dollar, right?

Townsend says no. It's more like $2 circulating for every $1 in Alaska because, in large part, that's because money in Alaska leaves Alaska pretty quickly.

#akleg

Townsend: The question comes down to 'Who pays?'

He says it's the single most important issue in the entire conversation facing the #akleg. Everything else, he says, is interesting but doesn't move the need as much as figuring out who's gonna pay for it.

Hughes just tremendously misreading everything while Rep. Kreiss-Tomkins trying to do his best to politely correct her.

The entire #akleg situation encapsulated.

And now Hughes is suggesting that if we were to pay out dividends that roughly equal about $10k Per family then there'd be more small businesses. She says it should be factored in here.

Then she references a different report about the cost of uncertainty. She says as long as they fix it, then boom Alaska will have $550M in additional investment (again, it's more complicated than that).

Townsend says it's more complicated than that.

#akleg

He says changes on the state level—like cutting education—will mean some local Govs will turn to new revenue like local property taxes, which in turn could create big secondary impacts for business investment decisions.

He says a lot of state government responded to the Great Recession by cutting K-12 funding and universities. He says the long-term impact has been higher property taxes and greater student loan debts.

#akleg

McCabe doubts Townsend, says that the whole rise in property taxes might happen but he says the REAL question is did the schools cut their expenses.

Townsend says with the universities, for example, don't want to cut themselves into becoming useless.

Now we're getting McCabe's Let's run government like a business spiel: "At the end of the day the university is a business. It’s in the business of selling education."

McCabe seems to think UA hasn't cut services. JKT and Townsend say the cutbacks have been significant.

#akleg

McCabe says if a business is hurting then simply cut the employees.

Townsend says ISER, for example, used to have 5 economists. It's down to just one, who's currently on his way out.

JKT says it looks like they are running it like McCabe suggests.

#akleg

And now Townsend notes universities bring a lot more to their communities than just selling degrees. Editorializing, he says they help grow the economic, expand the diversity, strengthen the community.

"I would resist reducing universities to 2-year technical schools."

#akleg

Townsend says it's wrong to take a narrow view of what a university brings to a community. He notes UAA played an important and significant role in pandemic and has helped the local economy. I believe there's a Sea Wolf soaring overhead.

McCabe: "I deserved that."

#akleg

Townsend says he's deeply concerned by continuing trend of outmigration combined with a workforce that is less skilled than its been. He says Alaska needs a bigger and more skilled workforce if it wants to have a strong future.

#akleg

In the tail end, we get some disclaimers from the Republicans.

Hughes says they've been meeting "literally hours on a daily basis."

McCabe notes people may be complaining retreads but notes they're "educating those who have not seen those presentations" and that includes him.

And that's it til Thursday.