Saying No to Decoupling

By Dave Donaldson

Hearings opened in the Senate this morning on a bill to separate oil taxes from gas taxes — addressing the risk that,  taken together,   the two resources reduce the total revenue to the state than if they were collected separately. 

Economist Roger Marks told the Senate Finance Committee that the tax value of oil far exceeds the tax value of gas.

On a straight, a straight apples-to-apples BTU basis, in this example, oil is worth nearly ten times as much as gas.   So what is driving this bill is what ensures when you combine two substances that have vastly different values.

Calculations from legislative and administration economists put the cost of combining the resources at nearly $2-Billion  a year when gas and oil prices are similar to the current market conditions. Separating the two taxes has solid support in the Finance Committee,  and strong support throughout the entire Senate.

However, there is objection to “decoupling”  — as it’s called.

House Minority Leader Beth Kerttula says there’s reason to worry that dealing with the bill will turn into a complete re-write of the state’s tax regime

I am not and I remain not concerned about the statutes as they are.   I think this is truly not a necessary step.   If we could come up with a compromise on decoupling alone — on separating an oil and gas tax,  then that might work.  But that’s not what I see happening and I don’t think it will happen.

And Anchorage Democrat Berta Gardner says the energy sources naturally go together.

When you’re talking about our net profits tax, they also have to separate and allocate the costs of producing in order to work the tax system.  You know the resource comes up all mixed together.  So how do you say?   Obvious advantages to doing it one way or another depending on the circumstances, and the state would have very little control.

Senate Finance Co-Chair Bert Stedman — who is the principal force behind the decoupling move — says the Senate is aware of concerns about the possible expansion of the Committee’s intent,  and he recognizes the bill will need some technical work to avoid those problems.


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