Increasing Taxes on Alaska Oil Producers Might Not Go Well
http://www.realclearenergy.org/articles/2017/02/16/increasing_taxes_on_alaska_oil_producers_might_not_go_well_110188.htmlFebruary 16, 2017
Democrats in Alaska are once again sharpening the hatchet and taking aim at the state’s favorite goose – the oil and gas industry.
As Alaska slips deeper into a recession that began in mid-2014, lawmakers in the 49th state are wrestling with ways to close a $3 billion budget deficit caused, primarily, by an extended period of low oil prices.
But increasing the tax burden on the government’s number one source of revenue when the industry is struggling with declining production, increased regulatory costs, and falling profits is likely to collect less, not more for the state’s treasury.
There’s no question that Alaska is hurting. The once politically unthinkable – imposing an income tax or cutting the amount residents receive each year from the state’s permanent fund – are both now being openly discussed in the halls of the state capital in Juneau.
In the state House, majority Democrats are seeking to increase the tax burden on the oil and gas sector, which, despite the downturn, still supports one third of all Alaska jobs and accounts for 65 percent of state revenues.
The governor’s office has already taken aim at the oil industry, vetoing hundreds of millions of dollars in tax credits promised by the previous administration in exchange for new investment in the state’s aging oil fields.
The administration argues the state can’t afford to pay the credits in the current fiscal environment, but the investments have already been made – resulting in the first uptick in oil production since 2002 – and the obligation to make good remains on the books.
A bitter fight over changes to the state’s oil tax system also brought the legislature to a standstill in 2016.
Legislation introduced last week – House Bill 111 – picks up where things left off last year, attempting to increase the government’s take by further rolling back tax credits on new investment and raising the minimum tax to 5 percent of the gross value of production – which equates to an increased tax liability of 25 percent to 100 percent, depending on the company.
The legislation reduces the risk to Alaskans of developing the state’s resources by shifting it almost completely onto the oil companies. Resource extraction taxes usually try to strike a balance to encourage continued investment. Governments either set a floor to capture a guaranteed minimum at low prices in exchange for allowing companies a greater take when prices rise or they share the risk at low prices for a bigger piece of the prize at high prices....
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Insanity. I spent 4 years working in the Alaskan Oil Industry. I watched the Palin Adminstration implement massive tax increases, even making them retroactive. It put the brakes on most new projects. While the oil industry grew in the lower 48 as the prices climbed going into 2010, Alaska's did not.
Eventually the lesson was accepted and the new Governor Sean Parnell brought the taxes back to reasonable level and major new projects were started.
It appears once again, Alaska is going to start choking their golden goose.
