Income taxes are unpopular, but after reading up on our history, I am strongly in favor of one for us today. An income tax is important to our state’s social health and budgetary diversity, it’s a mark of ownership and a declaration of independence from outside influence.
I’ve been reading about Ernest Gruening and I’ve noticed some striking similarities between his efforts to enact an income tax and the tax battle today. Allow me to share a few observations from Claus-M. Naske’s book, “Ernest Gruening: Alaska’s Greatest Governor.”
When Gruening was appointed governor of the Territory of Alaska in 1939, he believed the most urgent problem we faced was an inadequate revenue system. Alaska’s resources were not being utilized for the benefit of Alaskans; they were being extracted and shipped south.
“The time has come,” Gruening declared, “when an increasing proportion of that wealth should be kept in Alaska for the further development, progress, and improvement of Alaska and the Alaskan.”
As Gruening traveled the territory, he discovered a reluctance by many to assume financial responsibility. Gruening met with Charles Bunnell, president of the University of Alaska. Bunnell agreed that an income tax was essential but difficult, “because the territory has now gone years without such program and has gotten in the habit of not paying taxes.” The problem according to Bunnell was that “several of the senators and representatives were really employees of the gold companies… (and) they would be utterly opposed to it.”
In 1941, Gruening proposed a sustainable plan to fix Alaska’s revenue problem. It was panned by newspapers and firmly opposed by legislators who believed Alaska’s economy would benefit most from unregulated resource extraction.
Similar to Gov. Bill Walker’s sustainable budget road show, Gruening resolved to take the revenue matter directly to the public. In his “Message to the People of Alaska,” Gruening laid out a simple choice: Alaskans could work together and contribute taxes for the benefit of all citizens, or stand by and be “governed for and by outside interests whose sole concern is to take out of Alaska as much as they can as fast as they can, and leave as little as possible.”
Gruening went into detail about the way the Legislature operated and explained how easy it was for private interests to control a small number of lawmakers and completely obstruct any meaningful legislation.
When federal money poured into the pockets of Alaskans during Word War II Gruening pointed out that “no part of this, under our rigid and antiquated tax system, went into the territorial treasury.” Gold mining, not essential to the war effort, was suspended and the salmon trade upended.
Privately, Gruening lamented the missed opportunity: “What utter chumps these legislators are,” for even a small tax “would solve all the territory’s financial problems, and who would miss it?”
By 1947, budget estimates came in at nearly $11 million while available revenue was languishing at only $3.7 million. Most of the budget went to education, welfare and the Pioneer Homes. In Gruening’s judgment, it was “not possible to make any substantial reduction” in these categories.
The Legislature made half-hearted attempts to raise revenue by increasing motor fuel and liquor taxes but still violated territorial law by running a deficit. Gruening had to freeze expenditures while the administration sorted out the mess. Important matching federal funds were lost and the University of Alaska would have closed if not for loans from wealthy members of the Board of Regents.
Angry constituents contacted their legislators and clamored for a special session. The pressure was on for the Legislature to enact revenue reforms, but Gruening refused the call to a special session and instead waited for Alaskans to go to the polls and throw out the “rascals” in the Legislature.
After the election, Gruening immediately called a special session and the new Legislature passed the first comprehensive tax system for the territory. Gruening described it as “a long step forward toward economic stability and responsible self-government.”
Today, many people argue that an income tax will stifle our economy, but it was an essential step in the march toward statehood. It was foundational to our economy and helped us shape the Alaska we have today. An income tax in our past didn’t stall economic growth or stop the pipeline from being built, and I’m sure a reasonable tax won’t hinder us in the future, either.
As a brief addendum, I should mention that Gruening was adamantly opposed to a sales tax which he viewed as inequitable and vowed to veto.