What are the Implications of the Fiscal Options? Mouhcine Guettabi, PhD Institute of Social and Economic Research University of Alaska Anchorage 10/01/2016 ISER publications and presentations are solely the work of individual authors and should be attributed to them, not to ISER, the University of Alaska Anchorage, or the research sponsors.

What are the Basics of the Study? We analyzed how various fiscal options would affect the economy in the short run. We examined 11 options. These options are: cutting the state work force, making broad-based state spending cuts, cutting the capital budget, cutting pay of state workers, imposing several kinds of taxes—a progressive income tax, a flat-rate income tax, a four-percent sales tax, a three-percent sales tax, and a two-percent property tax—and cutting Permanent Fund dividends.

General Takeaways Different ways of collecting money from Alaskans affects those with lower and higher incomes in significantly different ways. Anything the state does to reduce the deficit will cost the economy jobs and money. But spending some of the Permanent Fund earnings the state currently saves would not have short-run economic effects. Because the deficit is so big, the overall economic effects of closing the deficit will also be big.

Job Impacts

Income Impacts

Distributional Effects Understanding the economy-wide effects is important, but it fails to inform us how these fiscal choices affect households.

Distribution

Regional Effects While our analysis does not investigate the regional implications of cuts and taxes, we know the state's boroughs are very different from one another. They have varied economic bases, and their government dependence is also very heterogeneous. Anything the state does to reduce the deficit will cost the economy jobs and money. But spending some of the Permanent Fund earnings the state currently saves would not have short-run economic effects.

Alaska’s Economy: 1985 Versus 2015 The economy, measured by jobs, is about 50 percent larger than it was in 1985. Several industries (mining, tourism, air cargo) are considerably larger. The Permanent Fund dividend is three times the size it was in 1985. Assets have increased in value. Federal payments to individuals have also risen. The share of people over 65 has increased. (Payments related to retirement and other transfers have increased seven-fold.)

Alaska's Economy Today Goods-producing sectors have lost a considerable number of jobs, with Oil and Gas and Construction being the hardest hit. Job losses have made their way into Professional and Business Services. State Government has also shrunk by about 1,400 jobs compared with last year. Healthcare, Retail, Leisure and Hospitality, and the Federal Government are the current bright spots offsetting the losses described above.

Basic Economic Forecast

How do we reconcile the health of the economy with the need to raise revenues? There are very few easy decisions, but it is clear that all the available options take money out of the economy and therefore potentially exacerbate the slowdown. Any decision going forward needs to balance budgetary pressures with economic implications. The sky is not falling.

E-mail: mguettabi@alaska.edu Thank You Mouhcine Guettabi Phone number: 907-786-5496 E-mail: mguettabi@alaska.edu