Oil industry gripes about taxes but still makes money

April 8, 2011 

The legislative session appears to be closing out without any reduction in oil taxes. Good; Gov. Egan would have approved. Oil taxes increased because Alaskans (including Sarah Palin, thank you) noticed the "windfall" effect of the steep rise in global prices. Your grocery bill rises, pushed by the costs of food production. Oil started its dramatic climb pushed by global nervousness, not production costs. Profits soared without any real increase in costs.

Shouldn't Alaskans share in this windfall? We are stung at the gas pumps and by the increase in the cost of everything in which oil prices are an ingredient, which leaves out very little. Even with a sizeable tax increase, the leaseholders still make far more than they did before, a fact well demonstrated by shareholders' reports.

With an occasional year to draw breath, the industry has complained about taxes since Alaska started taxing. Further, their spokespersons, direct and indirect, have regularly warned that if you don't reduce taxes, the industry will take its marbles and go home, taking jobs, reducing spending, etc. These various intimidations should ring pretty hollow by now but no, they are still solemnly trotted out even when the "facts" being pushed are crushed by the weight of evidence from disinterested sources.

It is troublesome that so many distinguished citizens appear to push facts regarding drilling, profits and the like that are plainly deceptive or false. These citizens, for their own good reasons, want to see oil taxes reduced. Well enough. But when the marketing of the argument is left to advertising professionals, who are more interested in "getting the job done" than the truth, we have propaganda. Propaganda, with its ugly history, can put off members of the public who may, to a point, share the objective but who are well informed enough to recognize propaganda.

Propaganda works on the theory that if you say something often enough and loud enough, people will believe it. Recently, propaganda has pushed aside normal political discourse at an alarming rate, fed by the court-authorized, irresponsible use of corporate funds.

There are reasons to reduce taxes that do not depend on false argument. A real conservative might say, "We should reduce the tax because the government is spending the proceeds, not on health, education and other necessary social services but on huge subsidies benefiting persons who should pay their own way."

Advocates for spending on nongovernmental purposes fall all over one another. We are spending big time for both a dam and a gas pipeline when either alone will meet the power needs of the Railbelt for the foreseeable future. In a real world, shouldn't the ratepayer pay the costs of electric power? Highway users should pay for the Knik Bridge or dump this overblown project.

Why should oil pay the costs of services that everywhere else are paid by fees and taxes? We have built a false and unsustainable economy using oil money to underpin every other form of business and development. Rather than adopting a normal economic model in which taxes and fees pay a major share, our leaders would rather stick it to the oil companies or cut essential social spending.

Considering our unbalanced economy, the single most important use for elevated oil revenue is to build that nest egg against the coming "rainy" years. Much of the state can be run on earnings from savings. Though the PFD must shrink, a savings strategy should work if the oil tax is left in place.

Remember the bumper stickers? "Please Lord. Give us another billion and this time we promise not to p--- it away." There are a very few investments to be made in Alaska's future. Education and its cousins research and development are among them.

The state should also undertake long-term studies evaluating tax and royalty returns from other resource development, a long-neglected subject.

Between sessions, the Legislature, particularly Senate Republicans, will be under intense pressure, originating with the oil industry, to change their minds. Ordinary citizens must hearten their representatives to keep Alaska on a sound fiscal track.


John Havelock is a former Alaska attorney general. He lives in Anchorage.

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