Oil tax fundamentals
Something for nothing isn't good policy
The Alaska State Senate is struggling to pass an oil tax reform bill, and little wonder.
Even the Senate GOP-led majority, far more in tune with Gov. Sean Parnell's policies than the bipartisan group of the past, has hit some bumps on the fast track. Sen. Kevin Meyer, who works for ConocoPhillips, has acknowledged that a bill that gives breaks with no guarantee of further development is a "kind of a crapshoot."
Despite the slowdown, the Senate is still poised to act this week on Senate Bill 21.
The most recent version of SB21 as of Tuesday still provides hundreds of millions of dollars of tax relief a year -- up to $1 billion or more -- for nothing in return. Progressivity is eliminated even if the major producers do nothing to increase production. Other elements of the bill tie tax relief to new production, but there's no question that Alaska is, in Sen. Lyman Hoffman's words, "pushing money across the table" for nothing in return. It's a lot of money, enough to have Alaska running deficits very shortly.
Our 20 senators -- especially those inclined to vote yes -- need to think hard about this. As we've written before, the current ACES oil tax regime isn't the Ten Commandments. It's all negotiable -- base rate, progressivity, revenue exclusions, tax credits. But too much of SB21 gives the majors a bigger -- much bigger -- share of the profits with no provision of anything in return to Alaska. That's not how a sovereign state does business. That's not how elected representatives ensure good schools, public safety, transportation and public health -- the bedrock on which both a market economy and a civilized society thrive. A "crapshoot" isn't good stewardship.
As the bill stands now, we know what we'll lose. We don't know what, if anything, we'll gain. Further, major oil company executives testified that these tax cuts -- measured in the billions over the next few years -- still might not suffice to encourage more production. But these cuts will certainly enhance the companies' bottom lines, even if they do nothing for Alaska.
Wisdom calls for a bill that boosts company profits when the companies produce more oil to the benefit of Alaskans. It makes no sense to reward them for doing what they're going to do anyway. It does make sense to write a bill that rewards investment aimed at production of more oil.
Produce more, profit more. That should work for all hands.
BOTTOM LINE: Oil tax reform must be a deal, not a roll of the dice.