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Paul Jenkins: Don't buy the baying for tax cut repeal

Paul Jenkins

With the new year, those desperate to return to a failed oil tax system that promotes a huge government rip-off will begin baying at the moon in earnest to get their way at the expense of Alaska's future.

Given their previous record, they will be more than willing -- even eager -- to fudge facts or spin their own. They like ever-bigger government and more spending, no matter the long-term economic wreckage.

The fight over implementing the new oil tax reform, Senate Bill 21, which finally fixed the Alaska's Clear and Equitable Share tax mess, was last year's hottest political story. The fight to keep that reform despite a Democrats-driven primary election referendum to repeal it could overshadow even this year's contentious U.S. Senate race.

The old tax was lousy law. It contributed to more than a 90 percent marginal tax rate at higher oil prices. It gave investors economic hives when it came to spending for new oil production in Alaska. The old law's ratcheting progressivity -- despite its 25 percent base rate -- made the state as attractive as a stiff dose of cooties. The industry spent elsewhere.

The old tax not only failed to spur production and revenues, it cost Alaska $1 billion annually in tax credits for exploration and construction that has yet to produce one drop of new oil.

Adding no new oil to production already sliding because of natural oil field forces only made things worse. While production surged nationally, without investment it slipped here. A recent CBS news story describes Alaska as being "left in the dust." The state fell -- even with more than 5 billion barrels of oil still in the ground -- to fourth among oil producers, trailing even California.

Oil throughput in the trans-Alaska oil pipeline is drying up at 8 percent a year. State government wrings 90 cents of every dollar it spends from that oil. Lagging production already is costing Alaska hundreds of millions.

If that trend continues unabated, the consequences -- new taxes, layoffs, reduced help for cities -- could be catastrophic. The new reform -- a tax break, actually, at higher oil prices -- is aimed at spurring production to halt its downward slide and provide revenues far into the future.

Opponents mischaracterize reform as a "giveaway" and blame it for the projected dip in state revenue of up to $475 million annually. There are other factors at work. Falling oil prices, increased transportation costs -- shipping less costs more -- $450 million in added production costs and, of course, the increasing cost to the state of steeply falling production all play a role.

The truth? If the Left's failed ACES oil tax had remained in place, the revenue loss likely would have been worse.

Tim Bradner of the Alaska Journal of Commerce points out that the progressivity in ACES that made tax rates on oil profits skyrocket when oil prices soared made those rates -- and revenues -- fall like a rock when they dipped. The new reform replaces progressivity with a 35 percent base rate and offers substantial tax credits -- but for increased oil production, not capital improvements.

The short of it is clear to everybody but the tax-and-spenders on the Left: Alaska is an oil state, like it or not. The North Slope is producing less; we need more. The state's economy is twice the size it would be without oil, which directly or indirectly underwrites a third of the state's jobs. Everybody and everything in this state is touched by the oil industry. The state, as CBS notes, is uniquely dependent on oil.

Alaskans pay no income tax, no state sales tax and every man, woman and child gets an annual check from the $50 billion Permanent Fund. We have more than $15 billion stashed away in various other funds.

The new reform includes built-in monitoring and provisions that should spur production and revenues. If the industry fails to produce more -- and the reform already is working to get billions in projects moving on the North Slope -- the very same Legislature that rightly dumped ACES can rightly amend the reform. But repealing the new law would send Alaska back to the tax dark ages.

This will, indeed, be a loud and rancorous year. We all need to pay attention.

Let the baying begin.

Paul Jenkins is editor of the AnchorageDailyPlanet.com, a division of Porcaro Communications, which is performing services for the "Vote No on 1" anti-repeal effort.


Paul Jenkins