Alaska’s Income Tax Premium

Jared Walczak, Tax Foundation

Alaska’s decision to forgo an individual income tax serves an important role in offsetting above-average federal income tax burdens in Alaska.

At first blush, this sounds confusing. Alaskans face the same federal income tax rate schedule as everyone else. But there is an income tax premium for living in Alaska nonetheless, and its price tag is about the equivalent of the state income taxes often levied elsewhere.

The culprit here is the high cost of living in Alaska. Alaskans must earn 30 percent more than residents of other states just to break even on purchasing power. Fortunately, Alaska salaries partially—not wholly—reflect this cost premium. The flip side is that the federal income tax bite is larger even if the income stretches no further.

Alaska’s median household income of $77,790 is the equivalent of only $59,885 nationally and comes with an additional $4,888 in federal income and payroll tax liability for a married couple ($6,679 for single filers). A higher cost of living is not a tax, but it does carry tax implications because more federally taxable income is necessary to purchase the same lifestyle that lower wages could purchase elsewhere.

At a conservative estimate, married couples face an additional 5 to 6 percent income tax burden because of the state’s high cost of living—the equivalent of what a state income tax would cost in many states. If Alaska ever reimposed its own individual income tax, it would be the financial equivalent of paying two state income taxes elsewhere.

Over the past two years, 21 states have cut individual income taxes, while only New York and Washington, D.C., have raised rates. An Alaska income tax would not only cut more deeply into take-home pay than most state income taxes, but would also come at a time when most states are making their income taxes more competitive.

In Alaska, an astonishing 99 percent of all businesses are structured as pass-through businesses, meaning they would be subject to an individual income tax. A state income tax would have a twofold effect on these (mostly small) businesses: first, it would increase the direct cost of doing business in the state by imposing a new tax on small business owners’ income, and second, it would increase labor costs, since the income tax also falls on labor and this burden would be borne, to varying degrees based on employment elasticities, by both employers and employees.

Over the past decade, states without income taxes have seen their populations grow twice as fast as states that impose them. Furthermore, tax-induced migration is accelerating post-pandemic, given the increased viability of telework. Simultaneously, employers themselves will have more location flexibility as geography becomes less of a constraint on their workforces.

This may mean that back-office employees of Alaska-based companies are no longer bound to Alaska and could leave if their overall cost of living was lower elsewhere. It could also mean that people drawn to Alaska’s natural beauty could move to the state, either full-time or for part of the year, despite working for an employer located elsewhere. 

The last year Alaska had an income tax, it generated $100.5 million with a top rate of a now-astonishing 14.5 percent. Adjusting for inflation, a 14.5 percent income tax would only have increased state revenue by 1 percent in FY 2021 because of how much the state generates from oil and investment income.

Consider that. Alaska could adopt the nation’s highest income rate and its revenues would have only been 1 percent higher than they were without it. Is the cost to taxpayers and the state’s economy worth it?

Jared Walczak, Vice President

State Projects at the Tax Foundation

Support for prohibition

I want to express my thoughts again to our people. As the pandemic was expressed daily to move many, I want to express this again to move as many as we can.

What Is Wrong with Introducing and Enforcing Prohibition? Part 6

As the recent global pandemic becomes one of the serious respiratory viruses in this world, we should again see the effects of drugs and alcohol in our communities.

People, politics did cry out in fear of this virus during the worst of that virus. Many took advantage of the PANDEMIC to profit while many were doing the best they could to help prevent the spread of that danger.

The media had expressed this virus on a daily basis during the crisis and brought fear and concern for the lives of the people. The people, communities, countries, took heed to the warnings and enacted mandates concerning that virus. Everywhere you traveled, face masks, hand sanitizers, social distancing, etc. was practiced to save lives.

I want to express the concern of many… hopefully, again, on a daily basis about the effects of alcohol usage that hurts the body plus the mental condition of the user and the people influenced by the user, especially CHILDREN and the elders. We should be crying out for other destructive sources and activities like child abuse, child sexual abuse, etc.

Besides alcohol use, child abuse and child sexual abuse needs to be addressed more so than alcohol, but we wanted to address the alcohol usage because many times it encourages a child abuser to abuse.

Many of our elders have gone through different pandemics in their lifetime. Many have seen domestic problems on every level. One destructive problem to the body, family, and the mind has been alcohol. Many have caused trauma to the children. Abuse, physically and sexually. This has created a destructive society. (This is only one source, but it is used by many and abused by too many.)

Our elders do remember the days when mind-altering drugs were not a part of life. Survival was the focus in every part of the lives of the people. Respect was a way of life that was taught by the leaders. The chiefs communicated with the community, spoke in public gatherings, they had genuine care for the people. They were not there for the money, they were not there for the image, recognition, credit, acknowledgement, etc.

Here is a question – an ongoing issue that could very well be fixed. To some it is not an issue, but… Why do we continue to have an issue with the use of alcohol? I repeat… Why do we continue to have an issue with the use of alcohol?

Of course, we do have people that disagree that this is not an issue because they are users and they confess that they are good citizens. We know and have known that many are affected by the use everywhere.

One person shuts down a whole community. As of today, we have villages that are continually in “lock-down” because there is a user with a gun. One person, just one person, brings grief, sorrow, trauma, abuse to many – their families, their friends and the community where they are walking.

Mental trauma in children effects the condition of our future.

One is wanting that liquor because it makes him dance, another wants to relax, another wants to socialize, another wants to enjoy dinner with a glass of wine, another drowns the bad memories, and of course there are the businesses, both licensed and unlicensed, etc.

In all reality, we can dance, relax, socialize, eat, and fix spiritual conditions, do business without alcohol.

Why is it an issue? It hurts nobody to remove the source, it helps in every part of our lives and our community and of course the world by removing the source.

We know it takes away the revenue of the seller. There are other ways to earn money.

Then there is the Alcohol Board. They are doing the best they can to create a positive use of alcohol. They are men, women, just like we are. They decide based on their own personal beliefs. They could very well have controlled drinking habits. Government officials drink. They want to dance, relax, socialize, enjoy dinner with a glass of wine, and drown their bad memories with this mind-altering drink.

But, in all reality, IT IS AN ISSUE. Prohibition removes the issue.

But then, what we used to call good has become bad, and what we called bad has become good. Example is the bible. There are words in the bible that are offensive to many, but for me, it is the best source of a way of live that brings the best to the world we live.

What we as Christians call sin is accepted by the majority, and what we call a righteous act is considered WRONG by many in this society.

Leaders (I believe) in every village have made policies, ordinances, regulations, in reference to the destructive effects of alcohol to the individuals, to families, to communities. But sadly, SOME members of the leaders themselves are the users and abusers of the problem. Don’t get me wrong, SOME, not all.

Think about this…

Few years back, the health organization started the advertisement of the negative effects of tobacco, both the smokeless and cigarettes. And there was this one leader of that organization pinching snuff in full view of the public at the airport, then pulls out a cigarette and walks out to smoke.

What kind of a “billboard” is that when you are running an advertisement against a product and using it while your company is running flyers, video presentations, call-in numbers for help, against this product?

One Health Aide told my wife not too long ago, “We in the village are not a part of YKHC,” while that person had a wad of snuff bulging in his mouth.

That defeats the purpose of the effort to improve health and save lives.

We have AA’s, Family Planning Programs, Healthy Families, so many stories of abuse, trauma, deaths, and more, all for the reason from the effects of alcohol. Billions of dollars are spent to help people, communities so a few can get richer by providing the source of the effects.

AVCP had a Public Safety listening session at The Cultural Center right before the pandemic. ACVP member villages were invited, council members, tribal police, tribal staff, and other interested parties.

It was a very emotional meeting. The main reason for the need for Public Safety had to do with the need for Public Safety, in which every testimony testified of intoxicated people hurting families, and the communities as a whole.

At the end of the meeting, it was very sad to see the members representing their communities going to the liquor store and you know what happens.

According to some people’s understanding, on the job is to do the job according to the policies. But once they punch out, they can do whatever they want. Which is true. But as public figures, leaders, enforcers shouldn’t that be the life of that person, especially village officials and village law enforcers?

I will close with this question, what is wrong with introducing and enforcing prohibition? This is not final! Thank you.

Andrew Boyscout

Chevak, AK

Example: 9075434113