High taxes cut the flow of Alaska's lifeblood: oil

commentDecember 10, 2011 

The ongoing, maddening ruckus over whether state senators finally will reform Alaska's Clear and Equitable Share oil tax and get the state's economy back on track is only partly about the rapacious levy. It also showcases warring philosophies of how governments should tax.

Should Alaska tax to a surplus? Or should it take only what is necessary? It is well established that reduced taxes spur investment. Should we feign surprise when higher taxes send investments elsewhere? Should government tax to punish or extort? An example: Alaska uses ACES to steal more than a billion dollars annually from the shareholders of the North Slope oil companies -- shareholders who include everyone from the elderly to the Alaska Permanent Fund. Should the state shortchange them to tax for wants rather than needs?

In the end, there is less of whatever is taxed heavily and North Slope oil, Alaska's lifeblood, is an example. Would reduced taxes change that picture? Unequivocally, yes.

ACES proponents appear to be big-government, big-tax ideologues with a visceral hatred of the oil industry. There is no other explanation for their shortsighted actions. They must be blind not to see ACES for what it is.

The tax's supporters couch fair, equitable taxation of the oil industry as a "giveaway." (It never occurs to them it is money the government should not have pocketed in the first place.) They want you to believe they are protecting what is yours. They are, I suppose, if "yours" routinely is funneled to unions, fat capital budgets and pet causes.

Gov. Sean Parnell introduced House Bill 110 to fix ACES -- and about double the throughput in the trans-Alaska oil pipeline. The tax is a legacy of former Gov. Sarah Palin and an acquiescent Legislature caught up in a paroxysm of anti-corruption excess. Parnell's measure passed the House last session 22-16 but foundered in the Senate. Some senators claimed they needed more information.

The levy is a one-of-a-kind monstrosity. It includes a base 25 percent production tax on net profits up to $30 per barrel. When net profits rise to $31, the state tacks on an additional .4 percent to the base rate and applies it to the entire $31. It keeps adding .4 percent to the rate each time profit rises by $1 and continues applying it to the entire amount. That single component is a profit killer and must be corrected. Because of ACES, Alaska boasts among the highest marginal tax rates in the world, topping 90 percent when oil prices are high. Unsurprisingly, North Dakota, with its 11 percent tax rate, looks rosy to the industry right now and that state's economy is sizzling.

While senators wait for more information, the bad news gets worse. Throughput in the trans-Alaska oil pipeline is about 25 percent of capacity and is drying up by 5 percent to 8 percent a year. Of every dollar our bloated government spends, 90 cents of it dribbles down the pipeline.

With vexing problems of every description on the horizon and next year's session looming, The Associated Press surveyed Alaska's senators, asking all 20 where they stand on the tax. Eleven responded; only one would unequivocally support HB 110, the AP said. Six said the tax needs to be changed; others said they wanted -- you guessed it -- more information, the AP reported.

Here is some vital information senators need. Among other things, a University of Alaska Institute for Social and Economic Research report says Alaska's economy and population are twice what they would be without oil. An excerpt from the report says while other economic sectors are important, "oil will remain the state's main economic driver -- so Alaska needs to develop a strategy that will provide the greatest long-term benefits from future oil production for the state, the economy, and Alaskans."

So far, the strategy in some quarters has been to jack up taxes unfairly to the point that investment dollars for new oil are being spent elsewhere by North Slope producers. The shakedown of those companies by big-government advocates may, in the end, have an ironic outcome, giving small-government supporters what they want -- a smaller government. It may be all we can afford if things do not change.

This sort of thing used to be called cutting off your nose to spite your face. Now, we just call it dumb.

More information later.


Paul Jenkins is editor of the AnchorageDailyPlanet.com.

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