The opinion expressed by Malcolm Roberts in a March 10 Compass warrants a response.
Alaskans and Americans know that lower taxes contribute to greater economic investment by small business and more disposable income for individual taxpayers. This is why most Alaskans support lower property taxes and lower sales taxes.
Two of the greatest periods of American economic growth occurred after President Kennedy substantially reduced taxes in 1961 and President Reagan reduced taxes in 1981. Neither president asked small business or the public to provide guarantees that they would invest or spend more. Each president simply relied upon the rules of economics. These same rules should apply to oil tax policy in Alaska.
Mr. Roberts suggests that the governor is threatening to "give away our resources" without "guarantees of increased production" or that the "give away" "will ever be repaid." This reveals an unworkable approach to tax policy that will grow government and add more regulation.
What form would these guarantees take? A contract? How would the guarantees be enforced? Would it not require a new bureaucracy with more regulation? While Mr. Roberts is thinking of the current major producers, don't we want new companies to come into Alaska? How do we legally extract a guarantee from new explorers and producers?
If oil tax policy should be based upon guarantees, why didn't Mr. Roberts and Backbone urge Gov. Palin to obtain guarantees from the producers that they would not decrease investment in Alaska when taxes were so dramatically raised by ACES in 2007? It would have been nice to have had such a guarantee because the rules of economics have worked very predictably since ACES passed -- the producers made more money by investing in more tax-favorable locations. The result is our accelerating oil production decline.
If Mr. Roberts' tax policy sounds like it would require a command, socialist, regulatory system to work, then you understand why his approach won't get the increase in investment and oil production we need. The only way to legislate such results under our free market form of government is to provide a competitive investment climate. This means reducing Alaska's government take through oil taxes to rates competitive with the government take of the oil provinces with which Alaska competes.
My administration in 2006 made the first major change in state oil taxes. We abandoned the outdated ELF, replacing it with PPT which set the state's total government take near 60 percent. Now, six years later, the governor's bill proposes nearly the same take.
Mr. Roberts' argument, that we should obtain guarantees before we fix ACES, overlooks the fact that Alaska's tax structure under ACES has the federal and state governments taking up to 74 percent of every dollar of profit the producers make. Alaska's current government take is very near the top of the oil-bearing provinces with which we compete. Gov. Parnell's legislation, as modified by the Senate, reduces the government take to 60 percent for new companies and to 62-63 percent for existing producers.
This is the same strategy that worked for Presidents Kennedy and Reagan. It is the tax policy that worked for Alberta, Canada. In 2007 Alberta increased its oil tax to a government take of 68 percent. It soon found that exploration and developers were leaving the province. When Alberta realized its mistake and lowered its government take to 60 percent, the developers returned.
Mr. Roberts' argument ignores the fact that Alaska's oil production is dropping by 6-7 percent a year, and is now down to 552,000 barrels a day. It ignores the fact that the major companies have lots of options on where to invest their capital. They will seek the highest return with the least risk -- right now that is the Gulf of Mexico with a 42 percent government take as opposed to Alaska's 74 percent take. Would you stay at the Hotel Captain Cook or the Sheraton if the same room cost 32 percent more at the Cook?
One only needs to look at where the producers are investing their development capital. It's not Alaksa.