The economic future of Alaska may depend upon how the legislature interprets and acts on the words: “fair share.”
Keep Alaska Competitive supporters know that it will take a combination of elements to fix our fiscal crisis: continuing to cut state government, restructuring the permanent fund with SB 26, and stable, competitive tax policies.
Alaska’s oil tax policy is very complex and extremely difficult to understand, especially for those of us who are not in the petroleum industry or are not accountants. Our legislators in Juneau face very difficult and critical decisions regarding these often confusing tax issues. The decisions they make in the next two months may determine if Alaska has a viable, long term economic future or a failed economy.
The question is: Do Alaska’s current oil tax laws fairly compensate Alaska, and are they competitive with other oil jurisdictions to attract investment to our state?
Too often, people only look at Alaska’s production taxes when asking this question.
It is important to consider all of the taxes, royalties and fees imposed on the oil industry: royalty: 12.5 percent – 16 percent of revenue (i.e. royalty is on “gross” value); state corporate income taxes: 9.4 percent of profits; property taxes, local and miscellaneous taxes; and of course, federal income taxes.
We believe that Alaska’s tax take is more than fair to our state, especially at lower oil prices, while providing a competitive environment for the petroleum industry to invest here.
The following information is available from the Alaska Department of Revenue, or the KEEP Alaska Competitive website (KeepAlaskaCompetitive.com):
At low oil prices, Alaska takes in substantial income from the oil industry. For example, at $30 oil prices, Alaska takes in $1.9 billion per year in taxes, while the oil industry loses more than $1 billion.
At high oil prices, Alaska also takes even more revenue from the oil industry. For example, at $100 oil prices, Alaska takes in about $5.5 billion while the oil industry earns less than $4 billion.
At all prices, Alaska takes in more than the oil industry earns in profits.
Keep in mind that the oil industry pays for 100 percent of the expenses, provides 100 percent of the capital and takes most of the risks.
I can only see two ways for Alaska to reverse the impact of the current recession: a catastrophic event, like a war in the Middle East, or we attract investment to our state with competitive taxes and regulations.
It is also important to note that Alaska is a high cost oil province. It is critical that our tax policies, in addition to these high operating costs, do not drive investment away. We must always remember that these investors can take their dollars anywhere in the world that provides the highest returns to their shareholders. Alaska must compete for these investments.
Most of us agree that Alaska needs continued investment and production of oil through our pipeline. We also agree that we need the jobs associated with oil production.
If Alaska’s leadership can solve our fiscal crisis now, maintain its competitive oil tax policy, restructure the permanent fund with SB 26, market our abundant resources, attract investment and control our spending, the future of our great state can be very positive.
We must get this right.
Jim Jansen and Marc Langland are co-chairs of KEEP Alaska Competitive, a 501(c)(6) organization composed of individual Alaskans, Alaska Native organizations, businesses and labor groups who care deeply about Alaska’s long-term economic future.