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Oil tax change proponents defy logic

  • Author: Paul Jenkins
    | Opinion
  • Updated: August 8
  • Published August 8

BP's Parker Rig 272, viewed from the Lisburne Production Center in Prudhoe Bay on Friday, May 22, 2015. (Loren Holmes / ADN)

Here we are, hip-deep in a nagging recession, battered by a worsening pandemic, with unemployment numbers higher than ever and businesses going belly-up at a frightening rate. So, hey, let’s slap our main industry with billions of dollars more in new taxes so there will be less investment and fewer jobs in Alaska. Right?

It defies logic, but that is exactly what those behind Ballot Measure 1, the so-called Fair Share Act, want you to do in November.

Proponents claim the taxes would hit producers at the three largest, generally most profitable North Slope fields — Prudhoe Bay, Kuparuk River and Alpine — with a 150% tax increase at current prices of about $40 a barrel, and 300% at $60 dollar-a-barrel crude. The tax would affect 90% of production activity that helps support about 100,000 jobs, the Alaska Oil and Gas Association says. That would leave Alaska in a non-competitive position among world oil provinces.

Fair Share Act backers, likely unaffected personally if the measure passes, will look you in the eye and tell you the tax would not affect industry operations, employment or investment. They pooh-pooh any notion it would rumble through the Alaska economy like an earthquake.

Of course, they are fibbing — or dreaming. Just imagine what would happen in your household if you faced a 150% to 300% tax increase on your pay.

You need only look back a few years to see a textbook example of what happens when government-first taxes get out of hand.

Former Gov. Sarah Palin’s visceral hatred for the oil industry congealed as Alaska’s Clear and Equitable Share oil tax in 2006. The confiscatory levy was far from equitable, and only clear in its aim to generate more revenue on the false premise the industry was hosing the state. Then-Rep. Ralph Samuels, to his everlasting credit, was the only “no” vote when the Legislature, cowering before Palin’s sky-scraping poll numbers, adopted the tax.

ACES, with its 25% base rate and progressivity, contributed to a marginal tax rate of more than 90% at higher oil prices — the world’s highest. It milked industry of $5 billion more than it would have paid under the previous oil tax — all to underwrite burgeoning government spending, fat capital budgets and Palin’s $1,200 energy “rebate” in 2008.

It was no surprise when industry investment dollars for new oil production fled elsewhere and throughput in the trans-Alaska oil pipeline dropped by 6% to 8% per year.

If that were not enough, ACES was so poorly constructed it offered tax credits for North Slope capital improvements that had nothing to do with increased oil production. That cost Alaska nearly $1 billion annually — without a single drop of new oil.

As production exploded in North Dakota, Texas and elsewhere, it tanked in Alaska — behind even California — because of ACES. That hurt Alaska, where oil at the time was paying about 90% of state government’s bills.

ACES bit the dust in 2013, replaced by the More Alaska Production Act, known now as SB 21. The Left, oil industry haters and big-government aficionados failed to repeal it in 2014 and have been mewling ever since, even as a revitalized industry appears to be turning a corner and opening new North Slope fields.

The so-called Fair Share Act is only the latest step in the relentless drive to bury the North Slope industry in punishing taxes to support ever more government spending.

This time around, the initiative’s sponsor, Robin Brena, is a longtime Alaska attorney who has represented municipalities seeking more property tax revenue from the companies. He claims Alaska is handing the industry $1.5 billion to $2 billion in tax breaks annually.

Maybe. Maybe not. There are enough claims by both sides of this issue to give anybody a headache. Common sense would hold that if taxes go up, investment — jobs, construction, production, exploration — go down.

The problem: The intricacies of complex oil production taxes, the effects and consequences of subtracting a fraction here or adding a smidgeon there, the economic fallout from changing even minutiae simply are not fully understood by most Alaskans.

Yet, Alaskans are being asked to decide labyrinthine tax policy at the polls by reading a 349-word ballot question, a question that could determine Alaska’s fiscal future. No legislative oversight. No debate. No discussion. No vetting or questions or experts. A pig in a poke put together behind closed doors. Just a “yes” or “no” that largely could make or break the state. COVID-19 already is crippling the economy. We should be asking: Is this the time to pile on?

Fair Share backers will look you in the eye and tell you the increase would not hurt industry operations, employment or investment. It would not rattle through the economy, they say.

Of course, they are fibbing — or dreaming.

Paul Jenkins is editor of the AnchorageDailyPlanet.com.

The views expressed here are the writer’s and are not necessarily endorsed by the Anchorage Daily News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)adn.com. Send submissions shorter than 200 words to letters@adn.com or click here to submit via any web browser. Read our full guidelines for letters and commentaries here.

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