Does Page Manager redirect work on alias paths?
Yes panels will read the path alias. I have discovered two related reasons why this problem might be occurring.


Many of my taxonomy terms are two words long. Panels does not have a provision (views does) to convert the spaces to dashes.  The panel redirection variant is not reacting to the URL because it is looking for an argument that does not have dashes generated by %spec:name.
I tried the same redirect using the panel provided by the system /taxonomy/term/%term and it succeeded in placing the redirect path in the URL, although the redirect did not work.  This is because the term name had two words and was inserted with a space in it.


There are several LEARNING Points for me in this answer:  

First, I discovered that the actual Drupal path to nodes and terms are fully interchangeable.  I thought that if a URL was using an alias, I was restricted to working with the alias format. The ability of panels to intercept the Drupal name pattern taxonomy/term/%term out of the alias drove home to me the fact that Drupal sees them as exactly the same.

Second, When this problem arose, I thought too big, too fast.  I suspected a bug in the module or a major misunderstanding of how the selections in the form connect to each other to generate the action of the panel variant.  I have had similar problems using views, which also very a complex module.  The problem turned out to be a minor, easily overlooked error.