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A few more tax details.

As I said, I had to pay an extra $512 in federal taxes because I applied for and donated my entire Permanent Fund Dividend in an effort to try to help the State with its massive budget deficit.

The reason it cost me such a whopping amount is this: My "effective" tax bracket (after the $6,300 "Standard Deduction" and the $4,000 "Yourself" exemption are subtracted) is 12%. But my "marginal" tax bracket is 25%!!!

The reason for the big "marginal" rate is due to the progressive tendency of the tax tables. This means that for every additional $100 that a person earns on top of all that they have already earned, they will have to pay the IRS $25.

Hey, why not just keep part of the PFD to cover the tax bill.
Someone might suggest as a way for the donator to escape the weight of the tax bite, is to simply donate only a part of his dividend to the general fund and keep a portion of it to cover the extra tax bill. But this would involve having to cash the dividend check or depositing it into the donator's personal checking account. The donator probably would not know in October 2015 as to what his exact taxes will be for the entire year of 2015. So he could wait until 2016 and figure out his 2015 taxes first. He may then find, as an example, that he owes $512 in extra federal taxes because of the $2072 dividend. $2072 - $512 = $1560. He could then write a personal check for $1560 made payable to the Alaska Department of Revenue. He could then write a letter requesting that that his $1560 personal check be deposited into the state's general fund.

But one problem with this is that $512 of tax money is still leaving the State of Alaska. At least the donator is not going into the hole, but the State is losing $512 that it could have retained.

Another problem is that once the PFD gets into the donator's personal checking account, psychologically, it becomes very painful to give it up. And if it sits in one's checking account for several months while one is waiting to see what their 2015 taxes will be, it could be spent. It might be replenished as a person toils at their job and earns more paychecks, but it becomes harder and harder for a person to sit down and write a check using their hard earned money to give a $1000 plus gift to the state government. It may almost come to seem borderline crazy.

In my case, in March 2015, when I was filling out the 2015 PFD application, I went to the "Pick Click Give" link and chose to give $2000 (the maximum allowable in 2015) to the University of Alaska Fairbanks. Psychologically, it was pretty easy, because the money that I was supposed to get was far in the distant future (October). It was not in my hand.

At the time, no one knew exactly how much the 2015 Permanent Fund Dividend would be. If for instance, it would have been $1600, then the Pick Click Give people would have latched onto $1600 of my $2000 pledge, and forgotten about the remaining $400. In other words, I would not have "owed" $400 to Pick Click Give or to the University.

As it turned out, the PF dividend check amount was $2072, and so I received a $72 paper dividend check in the mail.
$72 would have come in handy for buying several sacks of groceries, and it was right there in my hand with my name on it. But I had not cashed it and was able to summon the will power to resist it. I signed the back of the check to endorse it and also wrote the following words below my signature: "Payable to the State of Alaska general fund. (TO HELP CLOSE THE STATE'S MASSIVE BUDGET DEFICIT)".
I then mailed the check to the Alaska Department of Revenue with a note of explanation. I also requested a receipt.

Psychologically, it wasn't too tough to send the $72 check back, because it was fairly small compared to the entire dividend amount. By sending it back, I was able to maintain the "purity" of my purpose. I was able to say that I did not take a cent of the dividend.

The fact is, I just didn't feel comfortable taking even a penny of it, considering the dire straits the State of Alaska is in financially. Our state's credit rating is on the line. We are headed over the cliff if we don't do something soon.

Is the Permanent Fund Dividend a "welfare" check?
I've taken plenty of Alaska Permanent Fund dividend checks over the years. I appreciated them. They were very helpful. I did not consider them to be "welfare".
"Welfare" is where government takes money (by force if necessary) from a person who has earned that money, and then gives it to someone who has not earned it, but who supposedly has a pressing need for it due to their unfortunate circumstances.

The Alaska Permanent Fund on the other hand gets it money from the royalty oil that the oil companies willingly agreed to give to the State of Alaska as part of the lease agreement to drill for oil on state land up on Alaska's North Slope. For every 8 barrels of oil that is brought up from deep in the ground, one of those barrels is handed over to the state. All the oil in the ground where it has been for thousands of years, belongs to the state (and therefore to all the residents of the state of Alaska collectively). But the lease agreement says that every 7 out of 8 barrels that are produced, can be kept by the oil companies (who invested and worked hard to extract the oil).

The State of Alaska sells its royalty oil, and deposits at least 25% of the proceeds into the Alaska Permanent Fund as per Article 9 Section 15 of the Alaska Constitution. Once safely within the Permanent Fund, these oil royalty monies can be used only
for income producing investments. But the earnings from those investments can be taken out of the Permanent Fund. The Alaska Constitution (Article 9, Section 15) says: "All income from the permanent fund shall be deposited in the general fund unless otherwise provided by law."  This was written into the Alaska Constitution in 1976.

The Permanent Fund Dividend program was created by legislation 4 years later in 1980. It was not a "welfare" program because:

.....However, now, the surplus money is gone.
In 2015, the situation has changed.
Due to the crash in the price of oil, the revenues to the state have dropped tremendously. That has resulted in a $4 billion dollar deficit in the Alaska budget.

If it ever happens that a state income tax is instituted on hard working Alaskan people, and if a family with a bunch of kids moves up here, and if that family is on federal aid and not working, then paying each member of that family a Permanent Fund dividend check will seem eerily like a welfare payment.

 Who owns the money in the Alaska Permanent Fund?

The people (all the residents) of the State of Alaska own it in common. However, they don't own it in the same way that they would own a part of a company that they had stock in. In that case, they could sell their stock and pocket the money and leave the state.

However they could conceivably own shares of the Permanent Fund and be able to cash out their share, if a big majority of the Alaskan people decided to set it up that way. The population of Alaska is about 736,000. The value of the Permanent Fund is about $52 billion. That means that every Alaskan's share is about $70,000.
At the present time, the majority of Alaskans probably don't want to set it up where thousands of Alaskan's could cash out their $70,000 shares and leave the state.

The way it is now is easy come / easy go. A person can come up to Alaska and become a 1 year resident, and without investing a single cent, he is "granted" a $70,000 "share" of the Permanent Fund. That's the "easy come" part. But he can't cash his "share" out, and as soon as he moves out of the state he loses his $70,000 "share". That's the "easy go" part.

But the truth of the matter is, all the Alaskan people own all of the state resources and state government buildings, roads, road graders, state pick-up trucks, office chairs, filing cabinets, etc. We own all these things in "common". Technically, we could collectively decide to gather up all of the chairs in the state government office buildings and have them sold at a big auction and divide up the proceeds to all 736,000 Alaskans (since all the state government chairs belong to we the people). However, we would have to buy a bunch more chairs to replace them, with our tax money. And so we wouldn't gain anything. The whole operation would be wasteful. We the people have to decide on the most intelligent ways to utilize our physical assets and finite financial resources.   

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Written by Randy Griffin , PO Box 73653, Fairbanks, Alaska 99707
This page was first created on May 16, 2016.
Added to on May 24, 2016.