Paul Jenkins: Crazies making it tough to pass smart oil tax legislation

Paul Jenkins

While the crazies work themselves into a snit over the latest iteration of a possible fix for the Alaska Clear and Equitable Share oil tax mess, you have to marvel at their persistence, their dévouement to their particular brand of goofiness.

Me? I just wonder how they all managed to pickle their brains at roughly the same time.

In their frenzy to continue bleeding the North Slope oil industry they hate so much with an unfair, counterproductive tax, ACES supporters would drive Alaska inexorably toward its own fiscal cliff. In return for a fair tax, for too long they have demanded increased production as if reasoned public policy somehow is wrapped up in a down-the-rabbit-hole fantasy that has government making the trains run on time -- and oil production surging on command.

The smart money would be on fixing the tax to make Alaska competitive, to spur exploration and production, to slow the pipeline throughput decline while at the same time reasonably protecting the state's interests. Instead, we have those who want to retain ACES as-is and party on, although reams of calculations and irrefutable logic conclude that would end badly -- and soon.

A political gadfly with the support of, among others, Sen. Bill Wielechowski, a Democrat and pro-ACES state senator who should know better, would even have Alaskans vote on whether to reinstate ACES if lawmakers, led finally by sensible Republicans, manage to untangle the oil tax snarl. What a silly idea.

Apologists bent on clinging to the tax's worst features refuse to acknowledge it hurts Alaska's long-term fiscal interests. It is a bust. Instead of making the state competitive for the $650 billion being spent around the world this year on oil and gas exploration and production, ACES has flattened North Slope investment for new oil, although billions of barrels remain untapped. Alaska is an also-ran in the worldwide tussle for oil dollars, a victim of exploding technology and myopic tax policy.

What North Slope investment there is goes to infrastructure and maintenance. Production is down. Throughput in the trans-Alaska oil pipeline is down. The state already is coming up short -- $900 million next year because of falling oil production, the Legislative Finance Division says.

While it is swell the Left finally acknowledges the problem, the irony becomes almost palpable when guys like Democrat Sen. Hollis French, as he did in an op-piece last month, claim ACES is a "good system" and attack Gov. Sean Parnell's efforts to fix it because -- get this -- the governor's legislation does not mandate production increases in return for about $1 billion annually in tax breaks. It is a giveaway, they say.

They must be joking. ACES is the ultimate giveaway. In this fiscal year alone, it will hand out $1 billion in tax credits and cash payments to the North Slope industry for capital improvements that are not required to produce a single new drop of oil. Not one. We hand out $1 billion under ACES; we get zip for new oil Really, what's not to like?

ACES stinks; it always has. It was meant to be punitive and it is, boasting a 25 percent base rate -- with a progressive surcharge that taxes the first dollar at the same rate as the last. At higher oil prices, it contributes to a marginal rate of more than 90 percent. The industry says that is too much. If it is going to cost North Slope companies perhaps $3 billion annually to boost production, it is easy to see their point.

So far, Senate Bill 21, Parnell's oil tax bill, is through the Senate Resources Committee and is in Finance. It is ever-evolving and far from perfect.

Among other things, it includes a 30 percent tax on oil company profits, with a $5-per-barrel discount -- and it eliminates progressivity. It includes a "gross revenue exclusion" tax break for oil from new fields and new oil from old, or legacy, fields that ends after 10 years of production from a new well.

The complicated measure seeking that sweet spot between tax cuts and higher production has a long way to go. Democrats do not agree with much of it, wanting to retain progressivity, for instance. The companies themselves do not always agree on what is best.

With luck, in the end, the crazies must lose -- or Alaska will.

Paul Jenkins is editor of the