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ECONOMIC IMPLICATIONS OF AN ALASKA
INCOME TAX OR ITS ALTERNATIVES
BY JARED WALCZAK
ECONOMIC IMPLICATIONS OF AN ALASKA
INCOME TAX OR ITS ALTERNATIVES
BY JARED WALCZAK
Key Findings
• Alaska’s heavy reliance on oil and gas taxes and investment income creates extreme
revenue volatility and complicates revenue forecasts.
• Alternative revenue streams cannot easily displace existing sources. For example,
to raise as much of its revenue from an income tax as the average state does, Alaska
would need to have income tax burdens three times as high as California’s.
• Alaskans experience a higher-than-average cost of living, partially offset by higher
wages, but this yields an additional federal income tax liability greater than the
amount residents of many other states pay in state income taxes.
• The economic literature demonstrates that income taxes promote outmigration and
reduce in-state employment mobility, gross state product, investment, and innovation.
•
Individual income taxes have a twofold effect on small businesses: directly as a tax on
owners’ income and indirectly by driving up labor costs.
• Most states are reducing reliance on individual income taxes; 21 states have enacted
or implemented individual income tax rate cuts since 2021 while only New York and
the District of Columbia have raised rates.
• A state sales tax would be more economically neutral, and the ability to design one
from scratch would allow lawmakers to avoid some of the design features that make
the sales tax regressive.
• No new state tax will be sufficient on its own; additional fiscal restraint will be
necessary, perhaps in the form of an enhanced spending cap.
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Introduction
The global pandemic put many plans on the backburner—some because they ceased to be important
in relative terms, and others because they ceased to matter in absolute terms. For many states, the
pandemic era has been one of unexpectedly strong tax revenues, thus sidelining most talk of new
or higher taxes. For Alaska, with it