In Fiscal Year (FY) 2013, Alaska collected $6.8 billion in state and local taxes. While this is an impressive sum of money, it tells us little about whether or not the Alaskan taxpayers can afford this level of taxation. Alaska presents an interesting case when it comes to answering this question.
First, as shown in Chart 1, Alaska’s state and local tax burden (tax collections divided by personal income) was the highest in the nation for 2013 at 18.6 percent—or 81 percent above the national average of 10.3 percent. Not surprisingly, as shown in Chart 2, the tax burden has grown over time by a whopping 279 percent to 18.6 percent in FY 2013 from 4.9 percent in FY 1959 (when Alaska joined the United States as a state).
However, 66 percent of Alaska’s tax collections come from “all other” taxes—mostly severance taxes levied on the extraction of oil. If all other taxes, such as severance taxes, were excluded from Alaska’s tax burden then Alaska would rank as the lowest tax burden in the country at 6.2 percent. This low ranking stems from the fact that Alaska does not have a state personal income tax or state sales tax.
Second, Alaska’s severance taxes fuel their Permanent Fund enshrined in their constitution in 1976. An annual dividend is paid to every resident in Alaska from the Permanent Fund. Over the years, the dividend has fluctuated from a low of $331.29 in 1984 to a high of $2,069 in 2008. In 2013, the dividend was worth $900 based on a total disbursement of $568 million.
The existence of the dividend poses an interesting public policy question—should the dividend be considered as the equivalent to a tax reduction? If so, the dividend payment in 2013 would have reduced tax collections by another $568 million which would have lowered Alaska’s non-severance tax burden even further.
Third, severance taxes also pose another problem in that they are generally considered by economist to be fully passed onto the consumer in the form of higher prices. As a result, much of the severance tax burden is actually “exported” to the other 49 states. The tax burden analysis published by the Tax Foundation adjusts for this impact and ranks Alaska as the lowest in the country with a tax burden of 7 percent.
Overall, Alaska’s highest in the nation tax burden needs to be put into proper context due to the extreme tax collections from their severance tax. Whether one adjusts for dividend payments or exporting the burden to other states, Alaska’s true tax burden on the average taxpayer is much, much lighter.
Of course, the tax burdens for local government can vary just as much as they do among the 50 states. As such, we have also calculated the local government tax burden for every borough in Alaska—this includes every taxing jurisdiction within the geographic borough borders whether it is a city, a special district, or borough government itself.
The Alaska boroughs with the highest local government tax burden include: North Slope Borough, AK (78.4 percent), Aleutians West Census Area, AK (11.3 percent), and Aleutians East Borough, AK (10.7 percent). The Alaska boroughs with the lowest local government tax burden include: Southeast Fairbanks Census Area, AK (0 percent), Yukon-Koyukuk Census Area, AK (0.3 percent), and Wade Hampton Census Area, AK (0.8 percent).
J. Scott Moody has over 18 years as a public policy economist with a specialty in tax policy and has over 180 publications. He has worked for numerous national and state-based think tanks such as Federalism In Action, Tax Foundation, Heritage Foundation, and The Maine Heritage Policy Center.