The American Legislative Exchange Council (ALEC) has released the updated edition of Rich States, Poor States, which examines the economic competitiveness of every state using 15 equally weighted policy variables. Alaska is ranked 21st out of 50 states for its economic outlook, a reminder that our economic performance is mediocre, at best. Measuring the health of Alaska’s economy is a crucial first step to crafting targeted policy that will improve the economic outlook in the Last Frontier.
ALEC uses 15 equally weighted policy variables that measure financial stability, thus giving policymakers and the public a well-rounded picture of states’ economic outlook. The 15 variables include: the top marginal personal income tax rate, the top marginal corporate income tax rate, personal income tax progressivity, the property tax burden, the sales tax burden, the remaining tax burden, estate/inheritance taxes, recently legislated tax changes, the debt service as a share of tax revenue, the share of public employees, the state liability survey system, the state minimum wage, the average workers’ compensation costs, whether it is a right-to-work state, and tax expenditure limits.
Where Does Alaska Rank?
Among all 50 states, Alaska ranks 21st for economic outlook, and ALEC describes this ranking as a “forward-looking forecast based on the state’s standing (equal-weighted average) in 15 important state policy variables.” Backward-looking at economic performance, however, Alaska ranks 49th. In comparison, Utah, North Carolina, and Arizona rank the highest while California, New Jersey, and New York rank the lowest for economic outlook.
Because Alaska does not levy a personal income tax on residents, the state ranks very well for both categories that score personal income tax rates and progressivity (first and second-place rankings, respectively). On the other hand, Alaska levies one of the highest top marginal corporate tax rates in the nation, which brings down the state’s overall ranking.
In terms of tax burdens, the state has a low sales tax burden, a high property tax burden, and a low overall tax burden, considering both state and local taxes. According to the report, Alaskans’ average total state and local tax burden is $56.21 for every $1,000 of personal income. Additionally, the state does not levy an estate or inheritance tax, which reduces the overall tax burden compared to residents in other states.
While Alaska mostly scores well in the tax rates and burdens categories, there are several other categories in which Alaska scores very poorly. According to the ALEC report, Alaska has one of the highest shares of public employees—state and local—in the nation, ranking 48th. Having a high share of public employees keeps dollars flowing within the government, rather than boosting local economies.
Additionally, Alaska has a high debt-payment-to-tax-revenues ratio. This is the interest paid on state and local debt as a percentage of tax revenues. Having a high ratio (8.86% in Alaska) means that a large portion of tax revenues are paying off debts rather than funding current and future projects. Spending state funds on past projects does little to boost the economy. Similar to a personal budget, it is better for money to be forward-funded or saved rather than back-funded.
Lastly, the Rich States, Poor States report scores Alaska’s constitutional tax expenditure limit as 3rd in that category. Unfortunately, it is clear ALEC did not consider how the limit actually functions in the state. As Alaska Policy Forum has pointed out, the state’s constitutional expenditure limit, or spending cap, is set so high as to be essentially meaningless, thus requiring a lower score than ALEC gave Alaska in the 2022 Rich States, Poor States report.
Overall, Alaska’s 21st place ranking is middle-of-the-pack. While the state has multiple policies working in its favor, such as no personal income tax or statewide sales tax, the state also has policies that could be changed to improve Alaska’s economic outlook. Policy changes that would positively impact Alaska include setting a meaningful spending cap, maintaining a low tax burden, paying off debt, and implementing policies to encourage private job growth rather than boosting government jobs.
In many respects, Alaska is primed to become an economic powerhouse in the nation, but current policies are keeping the state in gridlock. Policymakers should take meaningful steps to encourage innovation, business growth, and economic prosperity in the Last Frontier.