I'm not a tax attorney. And, to be honest, my in-depth knowledge of the petroleum industry is pretty much limited to the operation of the pump at my local gas station. Thus, in discussing the pros and cons of Alaska's complex oil tax system, in the words of Forrest Gump, "I'm not a smart man."
I am not sure, however, that arcane expertise is required. Tax policies are among the most pragmatic and factual of human endeavors but they must also be a reflection of our collective character. It is at this level -- the level of "character" -- that I evaluate Alaska's oil tax system.
The debate raging the past months brings to mind a teeter-totter with both sides striving for the proper balancing point. Those advocating for lowering the tax seek to spur investment, which would lead to more production, a longer shelf life for the pipeline and ultimately more revenue. Advocates for maintaining the current system fear lowering the tax will reduce revenues without concomitant investment or increased production and thus view it as an unwarranted gift to the oil companies.
I can't say for sure either position is correct. I believe lower taxes do, at some level, spur investment; it is, however, an inexact science. We could reduce the tax and not induce the level of desired investment due to myriad factors. It is also possible reducing the tax would induce a level of investment that, in the long run, far outstrips the short-term windfall the state currently enjoys.
Because we cannot guarantee the long-term outcome of either maintaining or lowering the tax, we should act in a manner consistent with our character. Even if lowering the tax does not result in a reciprocal level of investment, it is still the right thing to do. Simply because we can take extraordinary amounts from the private sector doesn't mean we should. I am mindful that the current tax is responsible for overflowing state coffers and our ability to fund many desired projects and programs. But character requires constancy; it does not suffer exceptions. Alaska cannot claim to be a good business partner and friend of the private sector except for the oil industry.
Those considering long-term investment desire a level of predictability that the profits they seek will not be substantially eroded by future taxes. But, as everyone knows, we cannot bind future legislatures and cannot make such guarantees. How, then, do we achieve certainty and predictability? Character. If as a state we have earned a reputation for dealing fairly and responsibly with the private sector, those considering long-term investment can proceed with some confidence that they will not be punished for their success. On the other hand, if our reputation is that we will quickly resort to excessive taxes in situations where much may be gained, potential investors, in any industry, should be wary.
When you enter into a partnership, you need confidence in the character of your partner. Alaska's tax policy should be evidence of our character as a state: that we afford opportunity and reward hard work, that we encourage and support private sector investment, that we do not confuse the wealth of our state with the size of our public bank accounts, and that we do not look upon the success of our partners as opportunities for harvest.
Time and again history has shown the lure of easy money to be irresistible and its effects pernicious. Opting to fill every pillowcase and mattress in Juneau with cash from oil companies is at best a short-sighted approach and appears only to delay any serious efforts to deal with a long-term economic plan for our future. This oil tax windfall will flow in -- and just as ethereally flow out again, leaving us wondering what we did with it all. And when it's gone we will be desperate for new partners who, before doing business with us, will make a judgment about our character ... for better or worse.
Bill Evans is an attorney and chairman of the board of the Anchorage Chamber of Commerce. This is a shortened version of his chairman's letter that ran in the chamber's News and Views.
By BILL EVANS