SB 21 fallacies no match for hard truths; vote Yes on One

Joe Mehrkens
OPINION: Those in favor of saving SB21 from a referendum rest their position on fallacies; Alaskans will suffer higher taxes if we don't repeal the tax cuts. Aaron Jansen illustration

On Aug. 19 Alaska voters will have the opportunity to repeal SB21 by voting yes on Ballot Measure One. Like other high-stakes issues involving big money, the media blitz is full of sound bites, declarations of support and abbreviated claims of fact – most of which lie between selected truths and the whole truth. 

Fortunately, when SB21 is stripped of all its spin it is really pretty simple stuff – but is definitely not good for our future.

Support for SB21 relies on three common fallacies and denies two inevitable truths. I suggest all five be  pondered by voters.

The first fallacy is that SB21 has already boosted production in Alaska. Producing oil just does not happen overnight. SB21 is only a year old so much of today’s production was conceived and implemented under ACES. Moreover, I agree with Tim Bradner’s speculation that the oil industry anticipated passage of SB21 and accelerated its investments, which in my opinion was to create an immediate favorable image. Not a bad political strategy, given that their investments immediately benefit their industry regardless of SB21 and are small costs relative to the gains made from future tax cuts.

The second fallacy is that tax cuts lead to greater industry profits and are therefore an incentive for the industry to reinvest in Alaska. Moreover, this reinvestment will bring greater overall prosperity to all Alaskans. Nothing could be farther from a sure bet. There is no quid pro quo requirement to reinvest in Alaska in exchange for the SB21 tax breaks. In fact, the industry is free to spend the additional Alaska profits wherever it wishes, e.g. Russia, North Africa, North Dakota, Gulf of Mexico, etc. Yet the industry boasts that the reinvestment potential for Alaska is $1 billion. A more realistic look at $1 billion savings by Juneau economist Greg Erickson indicates that reinvestment could be as little as 10 percent of the industry's claim. Simply, we gave away the farm by not requiring reinvestment in Alaska for the SB21 tax breaks.

The third fallacy is about the timing of the billion-dollar giveaways. ISER’s Dr. Scott Goldsmith finds there has only been a 4 percent drop in oil revenues due in SB21’s infancy. On the other hand, opponents of SB21 show a Department of Revenue comparison of ACES vs. SB21 over a period of FY2007-FY2013 which results in a theoretical loss of $8 billion under SB21. Both are good information, but on the surface conflict. More enlightening are two findings by Goldsmith about our future:

1. The future tax rate under SB21 will steadily decrease from 23 percent to a long-term floor of 13 percent, and;

2. this lower tax rate is insufficient to finance state operating and capital budgets. Simply, SB21 holds the industry harmless while locking Alaska into one of the lowest oil tax rates in the world.

More important, each of the three fallacies cannot obfuscate two inevitable truths.

Regardless of SB21, Alaska’s oil production will continue to significantly decline and according to the Parnell administration will drop 42 percent between 2015 and 2024.

The second truth is that we are making this bleak outcome considerably worse by slashing our future shares of the oil wealth. Even more disconcerting, to compensate for lost oil revenues the state cannot just cut budgets alone. So regardless of your views about appropriate state spending for education, docks and harbors, prisons, road maintenance, etc., new taxes will be levied in the future to pay for the most basic of services and infrastructure. In all likelihood that will be a state income tax, but could also include a state sales tax and higher local property taxes. New oil taxes are less probable since we have already given away the farm to rich and powerful interests.

So if you do not want a state income tax sooner than later then vote Yes on Ballot Measure One to repeal SB 21.

Joe Mehrkens is a retired forest economist residing in Petersburg and Juneau.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, e-mail commentary(at)alaskadispatch.com.