Oil industry pays real taxes

  • By Patrick Reilly
  • Friday, April 7, 2017 1:34pm
  • News

For 14 years Rep. Les Gara has skewed the facts to support his personal agenda: Tax the oil industry out of existence to pay for more and more government.

In his latest interpretation of “the facts,” he calls Alaska’s production tax rate “mythical” and again strikes out at the tax credits that have proven to be one of the best investments Alaska has ever made.

It galls him that Alaska’s production tax is a 35 percent tax on net profits — and that there is a difference between a statutory tax rate and an effective tax rate, as the tax counsel for a major producer had to explain to him a few days ago.

“The calculation is based on 35 percent,” the attorney testified. “If I have a $100 profit, my tax is $35 on that. It may get reduced by credits … my effective tax rate may come down. But it’s calculated at 35 percent.”

Gara wants to change our tax system to a gross tax, which is a totally different tax system that our state has rejected — for good reason.

When Gara talks about fair share he also has a habit of conveniently forgetting that the production tax is just one part of the entire tax bill that industry pays. The other includes royalties, state and federal income taxes and property tax.

What that means is that Alaska takes in more than the oil industry earns in profits regardless of the price of oil. In fact, at lower prices, the state’s share gets proportionally bigger than the industry share. At $30/barrel oil, Alaska takes in $1.9 billion per year, while the oil industry loses more than $1 billion.

When the price of oil is high, Alaska still earns significantly more than the industry. At $100/barrel oil, Alaska takes in about $5.5 billion in revenues while the industry earns less than $4 billion.

On the subject of incentives, Gara ignores the fact that from FY 2007-2015, the state collected $62.1 billion in total petroleum revenue while paying out $3 billion in cashable/refundable credits to North Slope and Cook Inlet producers and explorers.

That’s right. Alaska dispenses $3 billion in credits and collects $62 billion in revenue.

Not a bad return, especially when you consider that that investment led to the discovery of the three largest oil fields on the North Slope in 30 years, doubled Cook Inlet oil production and turned a natural gas deficit into a surplus. Maybe you would have preferred that we froze in the dark.

That said, we aren’t quarreling with the need to look at cash credits to figure out alternative incentives that the state can afford with today’s low oil prices but still attract the investment we need to keep production levels stable and bring our exciting new discoveries to production.

All that requires a staggering amount of investment: $3-5 billion a year to maintain existing production levels in Cook Inlet and on the North Slope, and the $10 billion or so just to develop Caelus’ new discovery at Smith Bay.

We can count our lucky stars that oil has paid almost all our bills for decades. And that in these days of low oil prices and declining production, it still provides double what we collect from all other sources of unrestricted revenues.

In fact, oil accounted for $966.9 million in FY 2017, or about 72 percent of our unrestricted revenue stream.

But that isn’t enough for folks like Gara. They want to jack the production tax up even more on an industry even when it is losing millions each day — not because it makes sense or is good tax policy but because they think the oil companies will continue to develop our oil resources with higher tax rates. The practical result is that any investment will require higher and higher oil prices for a field to become economic.

Gara likes to accuse businessmen like me of being lackeys for the oil industry. The truth is we are just doing what business people are supposed to do — support our major source of revenue and jobs by encouraging investment.

Our goal is to keep jobs growing and having more oil flowing through the pipeline — just a very straight forward common sense approach to a bright future for Alaska.

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