Summary
The State of Alaska faces persistent budget challenges resulting from declining oil prices and production. Because current major revenue sources—petroleum and the Permanent Fund (POMV)—are not explicitly tied to internal economic activity, there is an "Alaska disconnect" between state growth and public revenue.
ISER researchers evaluated 11 primary fiscal options + three variations. These included changes to state spending, broad based taxes, and businesses taxes. Nine of these options were selected to match those ISER evaluated in 2016. In addition, ISER modelled two new options related to business taxes. ISER also evaluated three variations of these options.
Any options implemented will have impacts on the Alaska’s economy and people both in the short and long run. Those impacts include changes in the number of jobs, income, and the state’s value added activities. Further, impacts might be felt differently for higher and lower income households.
The State of Alaska faces persistent budget challenges resulting from declining oil prices and production. Because current major revenue sources—petroleum and the Permanent Fund (POMV)—are not explicitly tied to internal economic activity, there is an “Alaska disconnect” between state growth and public revenue.
ISER researchers evaluated 11 primary fiscal options + three variations. These included changes to state spending, broad based taxes, and businesses taxes. Nine of these options were selected to match those ISER evaluated in 2016. In addition, ISER modelled two new options related to business taxes. ISER also evaluated three variations of these options.
Any options implemented will have impacts on the Alaska’s economy and people both in the short and long run. Those impacts include changes in the number of jobs, income, and the state’s value added activities. Further, impacts might be felt differently for higher and lower income households.
ISER’s preparation of this report was supported with funding from the Office of Governor, State of Alaska. As with all ISER research, this report and its conclusions are solely the work of the individual authors and should be attributed to them, not to ISER, the University of Alaska Anchorage, or the research sponsors. The funding agency did not influence the conclusions of the report. The fiscal options and methodology were drawn heavily from previous ISER work. Deviations in fiscal options considered and methods of analysis were determined by ISER researchers. Conclusions and inference drawn from this work were also solely determined by ISER researchers.
Results and conclusions of this study should not be taken as ISER endorsement of any particular set of options. While we believe our results provide important supporting information for decision makers, our results are not sufficient to be solely determinative about which options the state should engage. Economic impacts, tax efficiency, and the distribution of fiscal burden across incomes are just one facet of this discussion. There are important additional considerations including the feasibility and cost of implementation, geographic differences in impacts, value judgements about how to weigh tradeoffs, and moral considerations.
Economic Outcomes: Jobs and Income
Every fiscal option evaluated carries a tradeoff for the state’s economy. When adjusted to a standard $100 million in deficit reduction, the short-run effects on employment and labor income vary significantly:
IMPLAN Model: Short Run Effects, Adjusted to $100M in Deficit Reduction and Residency
| Fiscal Option | Total Jobs | Total Income1 | Key Assumptions / Drivers | |
|---|---|---|---|---|
| State Spending | Workforce reduction | -974 | -$101 million | Assumes 100% resident impact. |
| “Clean” capital budget cut | -697 | -$60 million | If cuts affect federal matching dollars, impacts will be considerably larger. Assumes 100% resident impact. | |
| A broad spending cut | -1,076 | -$112 million | If cuts affect federal matching dollars, impacts will be considerably larger. Assumes 100% resident impact. | |
| Options that Affect Household Income | Permanent Fund Dividend Reduction | -375 | -$111 million | Consumption propensity2, no behavioral effects (eg assumes PFD income spent identically to all other income). |
| Broad sales tax with fewer exclusions | -313 | -$96 million | Assumes no substitution/savings. Consumption propensity. 2 Seasonal sales tax would reduce impacts by shifting burden to visitors. | |
| Narrower sales tax with more exclusions | -290 | -$92 million | ||
| A flat income tax | -309 | -$100 million | Assumes no labor reduction. Consumption propensity. 2 Allowing Alaskan’s to use their PFD as a tax credit would reduce impacts by shifting burden to federal government. | |
| A progressive income tax | -291 | -$102 million | ||
| State Property Tax with local credit | -365 | -$110 million | Consumption propensity. 2 Assumes landlords and renters split tax incidence. Residential property only. | |
| Business Taxes | Increase oil government take | -44 | -$4 million | No dynamic investment effects. In reality, firms will change expectations of future tax changes. Assumes fully resident incidence. |
| Increase in corporate taxes | -141 | -$11 million |
1Changes to wages, salaries, and benefits from labor plus Permanent Fund Dividend transfers, minus payments to government.
2Consumption propensity is the fraction of income that is spent in the economy which differs by income bracket.
Who Pays?
How does the fiscal burden fall on residents, non-resident workers, visitors, or the federal government? For every $1 of deficit reduction, how much would Alaskans pay? How are higher and lower income Alaskans affected?
Fiscal Burden for Every $1 of Deficit Reduction
Alaskans would pay about 73% of the revenue raised from a narrow sales tax, with visitors, non-resident workers, and the federal government (through SALT deductions) paying the balance.
Distributional Effects: Low vs. High-Income Households
Lower income Alaskans are affected most by PFD reductions. Higher income households are likely to see smaller impacts of any option through itemized federal tax deductions.
Strategic Policy Variations and Conclusions
No particular policy is without tradeoffs, but combinations may mitigate negative effects:
- Seasonal Sales Taxes: Implementing higher rates in the summer (e.g., 5% vs 3% in winter) shifts the burden toward visitors, reducing the impact on Alaska families by 2 to 5 percentage points per dollar raised.
- Growth-Oriented Combinations: Modeling suggests it is possible to implement a budget-neutral combination that stimulates growth. For example, coupling a less distortionary revenue source (like property tax) with expansionary spending (like capital project investment) can result in a net increase in total employment.
- Cost of Inaction: Failing to address fiscal challenges creates uncertainty, which is a tangible deterrent to investment. High fiscal uncertainty is estimated to have previously lowered Alaska’s real GDP growth by 2% to 3%.
Methodology
The estimates in short run economic impacts (jobs and income) are computed using commercial modeling, IMPLAN (Impact analysis for PLANning), a static input-output modeling system used to estimate short-run effects. It calculates how initial changes in spending generate direct, indirect, and induced effects as money circulates through the economy.
- Key Analytical Assumptions: To ensure different policies could be compared “apples-to-apples,” the researchers applied several standard assumptions:
- Rescaling: Regardless of the actual revenue a specific tax rate might raise, all impacts were rescaled to represent a standard $100 million change in the deficit.
- Independence: Scenarios were evaluated “a la carte,” assuming the impact of one policy does not necessarily amplify or dampen another when selected independently.
- Symmetry and Linearity: The models assumed effects are symmetric (an increase in spending has the same magnitude of impact as a decrease) and locally linear.
- Household and Business Modeling:
- Consumption Propensity: The analysis accounted for the fact that households at different income levels spend differently. Low-income households are assumed to have a higher propensity to spend, meaning a $1 reduction in their income results in a full $1 reduction in economic spending, whereas wealthier households may reduce savings instead.
- Incidence Tracking: For revenue options, the methodology tracked the “allocation of incidence” to determine what share of a tax is paid by Alaskans versus visitors, non-resident workers, or the federal government (via tax deductions).
- Generic Business Modeling: Because specific details of business tax changes (like oil production tax mechanics) are complex and volatile, researchers modeled them as generic reductions in profitability or increases in production costs to estimate broad economic responses.
Data Sources
The analysis integrated various federal and state datasets, including the American Community Survey (ACS), IRS Statistics of Income, and state-specific data on non-resident wages and visitor spending patterns.
Acknowledgements
We thank Alaska Department of Revenue for providing us with their licensed access to the REMI model, and for their technical assistance and collaboration on its use. Particularly Daniel Stickel, Parrish Ballard, Gabriel Cohen, and David Herbert. All errors are our own. ISER’s preparation of this report was supported with funding from the Office of Governor, State of Alaska.
Download the detailed report Fiscal Impacts Report.
To see how different fiscal options could be combined, download the excel based tool “Impacts_Model”. Fiscal Impacts Model 2026
How does ISER’s 2026 fiscal analysis compare to past analysis? You can find the 2016 ISER economic impact analysis here: https://iseralaska.org/2016/
