A 10-year forecast contains more guesswork than anything else, but the total differences between the competing House and Senate oil tax bills could be $2 billion over that period, the state Department of Revenue estimates.
The oil tax bill is not the only stumbling block on the road to a state budget, but it is a significant one that has to be resolved to avoid a government shutdown in Alaska.
Gov. Bill Walker said this week he would support using the Senate version as part of a compromise package, but the House remains wary of cutting the Permanent Fund dividend without getting something from the oil industry to help balance it out.
It's more or less the same dynamic that exists with the proposed income tax.
The House version of the oil tax bill would mean a small tax increase at prices below $80 a barrel, a level that seemed so low during the Parnell administration that few state officials gave it any thought.
The SB 21 debate was mostly about what would happen with oil prices near $100 or higher, a level that seems so high today that few people are giving it any thought.
The House oil tax increase would be about $94 million in 2019, which is in the neighborhood of the proposed fuel tax hikes on consumers and is close to what the Senate has proposed cutting from schools and the University of Alaska this year.
The House plan would raise $135 million in 2022 and $320 million in 2025, the revenue department estimates. The latter figure is based on an expectation that prices would climb by then to more than $70 per barrel, which is about where the tax increase would peak.
The Senate version of the bill would bring a tiny tax decrease for the industry, about $10 million in 2019, $15 million in 2022 and $5 million in 2025.
Under current law, there is no tax on oil produced in new areas for up to seven years when the price is below about $70 a barrel. The Senate bill retains that provision, while the House would institute a low tax.
The most significant thing is that both bills would end the practice of providing cash payments to oil companies, a system created by the state when oil prices and taxes were much higher. There seems to be a consensus, as Gov. Bill Walker put it this week in a letter to Senate leaders, "that the state can no longer afford a program where credits do not result in production."
Without a change, the cost of credits would run $150 million a year, climbing far higher if one or more major oil projects advances to development. This does not include the backlog of hundreds of millions in credits already earned under the law that have not been paid.
One big difference in the House and Senate bills is how they treat the future value of costs carried forward, including those on projects that haven't come into production.
The House plan would mean a reduction in future taxes of about $610 million over a decade, while the Senate plan would reduce future taxes by about $1.4 billion by 2027, the revenue department estimates.
The $800 million difference is mainly due to two issues. One is that the House bill puts a lower future value on those expenditures and the second is that the House would start to reduce the value of carried forward losses after seven years.
This gets into the effective tax rate and the official tax rate, which are not the same. Under SB 21, the official tax rate is 35 percent, a level that will never come close to reality unless oil hits $160 a barrel.
The effective tax rate under SB 21 is about 12 percent when oil is in the $60-per-barrel range. It would be about 24 percent at $100 per barrel. For oil that comes from Point Thomson and other areas eligible for an extra tax break, the tax rate is zero at $60.
Regardless of the effective tax rate, the companies can treat the future value of amounts carried forward as if they were paying taxes at the 35 percent level.
"Regardless of what the tax rate is the companies are paying, losses or company spending receives a 35 percent benefit in terms of its ability to offset taxes," Tax Division Director Ken Alper testified before the House Finance Committee on Wednesday. "That's just a fundamental nature of the current status quo tax system."
The House bill would change that so that when oil is about $100 or less, the effective tax rate of 25 percent would be used to calculate the future benefit for spending or losses. That change alone could make a $400 million difference over a decade.
Columnist Dermot Cole can be reached at dermot@alaskadispatch.com.
The views expressed here are the writer's and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com or click here to submit via any web browser.