CALL TO REVOLUTION
By David G. Hanger
January 26, 2016
Oil, as most of us know, is a depleting resource, and again, as most of us know, Alaska oil is the property of the state of Alaska and its people. As every gallon of oil is extracted from the ground a tax should immediately be paid to the state of Alaska for that oil; up front, right now. Nor should such tax be based on either the profitability or non-profitability of any oil extractor. That is another set of taxes commonly known as income taxes. At this time the state of Alaska is not realizing one dime from all of this oil extraction until the price exceeds $113 a barrel.
In ordinary parlance that can be termed “the rip-off and bankrupting of 650,000 Alaskan citizens.” And you voted for it in one of the most fraudulent elections ever perpetrated by man.
For to make up the difference every Alaskan is going to have to shell out big time. Eighty percent of every Alaskan’s income is not an exaggeration. As has already been reported, analysis indicates that a 10% state income tax will only cover ten to 15% of the needed ground; so to put the brightest assessment on those projections, i.e. covering 15% of the needed ground, a state income tax exceeding 70% of your income will sustain state government at its current level. At the least optimistic level it will require a state income tax of 100% or more of your income to sustain state government at its current level.
Nor does that cover what the regional and local governments want to take from you. In Southeast Alaska sky high property taxes and sales taxes are being proposed. The Ketchikan Gateway Borough already wants everyone’s Permanent Fund Dividend.
Not long ago a client in his mid-thirties stopped by my office to seek some ancillary help in getting his construction business expanded. Business right now is not just really good, he noted, he’s scheduled out already into 2016. I opened discussion on the financial problems of the state. “What does that have to do with me? I don’t work for the government, and I could care less if they all jumped into the ocean, never to reappear.” A fairly common Alaskan attitude. So then I asked him, “Who does the guy you are working for now work for?” His flat, suddenly nasal response, “For the government.” The lights had started to come on.
While it should disturb you, it should not surprise you that as a qualified expert in financial matters my recommendation to my clients is to sell your house now. How exactly to advise my business clients is at present ridiculously obscure, but in many instances it will be, “Move promptly.”
For most Alaskans the Federal income tax burden annually is no more than eight to 15% of their aggregate income. Few exceed 20%. The Federal system is progressive, so that so-called 35% tax bracket is marginal, i.e. only on income above a certain amount. The effective or aggregate dollar-for-dollar Federal income tax paid is actually much lower than most folks comprehend, and for many families with children, even with relatively high incomes, it is effectively zero.
So to propose a 10% state income tax is absurd, at that point among the highest state income taxes in the land (most range from 3% to 7% of income with a few greedheads like Oregon and New York wanting more). Yet such a tax does not begin to solve the problem; it has to be multiplied seven to 10 times over to cover the problem. So more likely to be tried will be some draconian combination of insanely high income taxes combined with insanely high sales taxes and property taxes. And, of course, insanely high user fees and licenses.
Most likely the first major state institution to collapse will be the Alaska Housing Finance Corporation (AHFC). One follows the other, so to speak, and it should be obvious that based on the current state of affairs more than half of the current state-level, regional, and local government employees will be de-funded and fired. Still the tax rates will be draconian, and fewer than five percent of these fired employees will find adequate alternate employment in the private sector. Cost-plus budgetary accounting and management technique has no place in the private world, and these people in most instances offer the private sector next to nothing. Virtually all of these terminated personnel will have to relocate for job purposes out of the state.
As the public sector is truncated by 50% to as much as 75%, so, too, the private sector will commence to collapse as well. Fewer customers in the first instance means fewer dollars coming in to the business, and thereafter draconian tax rates will make conducting business a pointless activity for most individuals. AHFC is going to have tens of thousands of units of abandoned housing on its hands.
Nor is this a problem confined to any one area of the state. While employment in Southeast Alaska does not involve the oil industry at all, almost one-third of the jobs in Ketchikan are government jobs. All of the state, regional, and local government workers will be subjected to strident layoffs. Then there is the tax burden. Already in Ketchikan they cannot finance the schools, let alone the over-bonding that has been encouraged by low interest rates but without forethought for the downside. The combination of lack of customers and outrageously high taxes will depopulate these communities, too. This government wants your money that you use to feed your children; it cannot survive without it, and you cannot survive without it.
Once this gets rolling it will be virtually impossible to stop. At the beginning of 2015 the reserve accounts of the state totaled about $16 billion. While we were told that the deficit was in the range of $3.5 to $4 billion, at the end of 2015 the state’s reserve accounts totaled $10 billion. “It’s all gonna go,” is state Senator Stedman’s simple and sardonic comment on the problem, thus at the current rate of consumption the state’s reserve accounts will be depleted by the third quarter of 2017. Thereafter, as intended by this state legislature paying for all of that is on you.
The level of uncertainty created by this situation is already intolerable. The leadership provided by the Alaska State Legislature is non-existent. This is what they want.
Tragic though it may be, it is nonetheless fact this government has forfeited all legitimacy. Payola and the dirty deal rule. The gerrymandering of electoral districts is designed to ensure their position in perpetuity. They have even created their own laws which allow them to use public funds to benefit their financial sources and benefactors, while excluding all of you from any possibility of participation even if you are simply ambivalent to their machinations. A new word needs to be invented to describe the magnitude of their corruption.
This is not democracy, but rather the completely rigged deal. It puts the old Communist elections to shame; their lack of legitimacy was transparent. These people are devious and dishonest; also quite stupid.
I am told by a former state senator that two-thirds to three-fourths of the Alaska State Legislature is either comprised of bought and sold oil company lackeys or fundamentalist Christians expecting the rapture at any moment and thus could care less about what’s happening on this temporal world. Both groups are completely unqualified to represent anyone breathing.
Understand the magnitude of their crime. Unless what they have done is radically changed and promptly, two years hence almost all Alaskans will be completely financially ruined. Only a handful of the millionaires will be able to weather this storm.
Let us study briefly the first level of this dynamic by taking Ketchikan where I live as an example. About 30% of local jobs are government jobs. I am not sure about the ratio between Federal and state employees, but let’s say that two out of three are state employees (we can improve and refine this data later). Based on current available data at least two out of three, if not three out of four state employees will have to be fired (we will analyze this in greater detail momentarily). At this juncture, therefore, at least 15% of all of the jobs in Ketchikan are gone forever.
But do not be deceived as to relative magnitude. This is more than enough to blow up the whole deal. Here is how it works. To hold onto 25% to 30% of all state, regional, and local employees based on current circumstances will require a state income tax of no less than 20% of your total income without benefit of any deductions, and could require a state income tax of more than 30% of your gross income without the prospect of any personal deductions or credits. That level of taxation is already insane, but then the Ketchikan Gateway Borough has swiped your Permanent Fund Dividend because they need it. At this juncture your population base is already in process of declining by 15%, and 10% to 15% of your available housing has just been abandoned. So your property values are on the skids, your state and Federal income tax bite exceeds 40%, and now sales taxes and property taxes have to be jacked considerably because there are fewer people paying off all these bonds.
Every person has his or her own individual level of tolerance for financial pain. If 15% of your population is gone, and that population also happens to be paid considerably better on average than those in the private sector, already your state small business economy has been affected by more than that 15%. And counting. The various tax burdens will compel even more out-of-state and internet purchases. The small business community will be particularly hammered with 25% to 40% declines in business at the first level, and another flurry of layoffs probably exceeding 15% to 20% of the state’s employment population. And no new jobs will be available.
So now 30% or more of your population has been forced to move south. So now the value of your homestead has essentially totally crashed, while in the meantime the property tax and sales tax burden is even greater because even fewer people are paying off all those bonds. Now each individual’s tax burden is well over 50%, just for the privilege of living here, and all the government employees have been fired except the cops, the firemen, and the dogcatcher. And I am not so sure about the dogcatcher.
It does not get better. A 50% tax burden is already intolerable, and that individual tolerance for financial pain will start coming into play quickly. The prospects for a complete colony collapse are quite high. It just gets worse with each departure, and these departures will be in droves.
I am skeptical the Permanent Fund will to come to your rescue. State Senator Bert Stedman assures us he will never let anyone touch the $39.2 billion Permanent Fund because it is sacrosanct. And that, of course, is already one big lie and so much bull. The current state proposal calls for a 6% state income tax and the forfeiture of your Permanent Fund Dividend to make up $2.3 billion of this shortfall annually. The rest is all going to come from the Permanent Fund which will be exhausted under the proposal by 2024 to 2025 at the latest. So if you want to believe that the Permanent Fund will actually be consumed in this way, you might have eight or nine years to find some other sucker to dump your bad news on. But one problem with their logic is the fact that the Permanent Fund Dividend comes from earnings of the Permanent Fund, and there will be no earnings when that fund is exhausted, and obviously as it is being exhausted any earnings are diminishing accordingly.
Last I looked, which was several years ago, the state pension fund was underfunded by $7 billion, and it would not surprise me if it is more than that now. The state has any number of other obligations. At this time the state is sitting on a grant total of $52.8 billion, of which total the Permanent Fund is $39.2 billion. Subtracting out known obligations leaves probably less than $45 billion, and at the current rate of consumption that cannot last more than ten years. I am convinced there is a very high probability that when it becomes obvious the crash is on, the Permanent Fund will be locked up by lawsuits for five to 15 years, and when the smoke clears, I would not be surprised if it is all gone. I fear we are about to find The Permanent Fund is not even a consideration in this equation.
Their numbers are chimerical at best. A six percent state income tax is really not what is being proposed, but the pretense would raise $350 million perhaps to solve a $6 billion annual problem. Norway has $804 billion in its reserve funds on similar production over a similar period of time at twice the production cost. Alaska has $39.2 billion in its Permanent Fund, the obvious reason why a third-rate player like British Petroleum became the second largest company on the planet, and why ten generations of unborn Alaskans have been totally screwed by these corrupt idiots. Now they are going to blow all the dough, if they can, to keep it all going another eight or nine years. I think there will be a bevy of lawyers who are going to get in their way.
So the clock is already ticking, and in two years or less the crash commences to begin. Once begun I am not sure anyone can stop it. As early as 2017 to 2018 there will be an exodus of around 500,000 former Alaskans seeking employment down south. So long as the national economy is not in recession the lower 48 will probably be able to accommodate them, but there is that uncertainty. When you leave, you will leave broke.
Quite frankly, this is the most dubious and critical economic situation I have ever seen. The example just described is a best case scenario based on terminating 75% of all state, regional, and local government employees, which itself requires no less than 20% to 40% of your gross income to support by paying state income taxes, and as the population declines all those rates are inevitably going up.
The idea that you can fire 75% of state government employees is nuts. By itself it is sufficient to blow the whole economy, and in relatively short order at that. Who wants to be the last sucker in this line?
Without the oil taxes it is not even rational to consider the current state government employment level because that would require tax rates of 75% to 120% of your gross income to pay for. That is not possible.
Restoring the old oil tax formulas is a first step toward resolving this mess. I doubt seriously at this point this will solve the current financial problem, but it will help. Not a single gallon of Alaska oil should leave the ground without being paid for first. Perhaps it is inevitable that the corruption of big oil will buy off any given state legislature, and the likelihood is even greater when oil is the primary financier of state government and so much more.
Duly note that before this fraudulent election in the spring of 2014 never had there been a major state budgetary deficit in the amount of billions of dollars. In the past 10 years the price of gasoline has dropped to $1.35 a gallon on one occasion, and down to $1.50 or so on at least two others. Last year the price was down as far as $1.67 a gallon in certain areas of the country. In the mid-1980s the price of gasoline actually dropped to 65 cents a gallon on at least one occasion that I remember, and in all that time never once did the state of Alaska have a major budgetary crisis.
Anyone claiming the price of a barrel of oil is what is causing this financial debacle for the state is an outright liar. That is inconsistent with facts and history. The primary culprit for this financial disaster is the change in the oil tax formula. It is certainly conceivable that the old tax formula would not cover all this financial ground, but a deficit of half a billion to a billion dollars takes 16 to 32 years to consume a budgetary reserve of $16 billion, whereas this current financial train wreck consumes it all in three years with only two years left on that calendar now.
This is among the greatest failures of leadership in the history of the United States. A whole state and its people have been put at maximum risk of complete financial ruin to benefit the interests of a handful of multinational oil conglomerates. This state legislature has disgraced itself beyond redemption. Our Governor, good man that he may be, seems clueless how to respond, expressing concern only about the government without any expressed concern about consequences to the private sector.
It is time for the people to act. This government will not solve this problem; it is sold out. Be rid of the lot. I call for a Constitutional convention to meet within 90 days of this date with the express purpose of declaring null and void this abomination of corruption, thence to restore true representative democracy to this great land.
The only other choice is financial suicide.
For the sake of your homes and businesses…..
For the sake of your sweethearts and children…..
For those yet unborn…..
There is no time to wait. Let freedom ring.
David G. Hanger
Received January 25, 2016 - Published January 26, 2015
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