Fight over oil taxes is far from over

John Havelock

The special session this year ended on an odd note. In an unprecedented move, Gov. Sean Parnell withdrew the oil tax reduction bill, his only reason for calling the special session. The addition of a gas pipeline bill to his call was an accommodation to friends in the House. As introduced, the governor's bill reduced taxes on Prudhoe Bay production by about $2 billion a year. The circumstances of the withdrawal make it clear why the governor withdrew it.

Led by the Senate, the Legislature was too close to forging a compromise that would have given tax relief tied to increased production requirements. Maybe there would have been some straight tax relief added as a part of the compromise but nothing like $2 billion a year. The governor's bill was straight tax relief justified as a necessary incentive to increased production. The bill failed in committee as the governor's witnesses failed to sustain its advertised merits.

There is nothing wrong with believing oil taxes are too high. Since Prudhoe Bay opened, under various tax regimes, the industry has almost without pause argued taxes were too high. A duty is owed to company shareholders to keep taxes as low as possible. Complaining about taxes is the American Way. Maybe Alaska's taxes are comparatively high. The case can be argued.

So why did the governor throw in the towel? The compromise bill that might have come out of the special session looked like a bad bet from the perspective of the governor and Prudhoe producers. The adoption of a bill takes the issue off the table for next year and maybe years to come. Better to kill the bill and any compromise by taking the bill back and closing out the special session.

There are far better chances of getting a real tax reduction bill next year with some serious spade work to be done in the meantime.

The Legislature is being reapportioned. Conservative Republicans enjoy a majority on the reapportionment board. A couple of seats can change the disposition of a divided Legislature.

New seats apart, there is work to be done in developing tax reducing candidates for the next election. Supporters of reduced oil taxes have unlimited resources to put into campaigning, particularly indirect campaigning allowed by the Citizens United decision of the U.S. Supreme Court. If you stood to gain $2 billion a year, what would you be willing to spend?

It is a sensitive issue. Whatever the long term implications, $2 billion in tax reductions next year translates as $2 billion less spent on Alaska jobs by the state and $2 billion more going to oil company shareholders few of whom live in Alaska. The numbers arguably narrow but it will still be more than a billion saying goodbye to Alaska for years to come. This is a very tough sell for most Alaskans.

Getting $2 billion in tax relief may be just a matter of getting that commitment from a few wayward friends before making a donation plus making new scores in reapportioned districts. A perfectly good campaign of a pro-tax candidate can also be ruined by deft negative ads.

Open campaigning for tax reduction is a mistake. A stealth campaign works better. The public probably has little sense of the merits but understands the huge personal benefits that come from enhanced state income and spending. For candidates who think existing tax levels on oil need no more than some incentive reductions that actually work, the election should be about avoiding oil tax reduction.

In a stealth campaign, with oil taxes kept below a lot of "social" or other issues, candidates favoring existing tax levels are seriously at risk from oil power. All candidates must be pressed to stand either with or against any approximate repeat of the governor's bill. On the other side, those who are with the governor's bill must come up with better reasons why huge tax reductions are desirable.

Nothing in the upcoming Alaskan election and nothing in the next session of the Legislature is more important than $2 billion a year.

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