Governor’s Oil Tax Plan

By Dave Donaldson

Governor Parnell Monday presented a plan making minor changes in the state’s tax on oil saying they would spur development and create more jobs in new fields. 

He says the current tax structure that was passed in 2007 has been effective in improving the state’s revenue.   However, he says that the condition of the industry has changed, and new incentives would increase production.

Given the global recession and declining job opportunities in the oil patch with declining oil production,  we need to do more now than before.  We need to do more than just grow the state’s savings accounts.   It’s not about growing our government, it’s about growing our economy.  Adjustments may be made that will be beneficial to the people of this state over the next several decades.

The plan is similar to a bill already introduced in the House of Representatives for consideration this year .  It would “bracket” what is called the progressivity tax – that’s a surtax on oil selling at more than $30 a barrel – set at rates that increase as oil prices go higher.  Those brackets would work like the federal income tax system where the tax rate changes depending on how much money the taxpayer makes.   Parnell says that the new “bracket” method would result in a lower effective tax.   Parnell’s plan would also cap that  progressivity tax and give more, different tax credits within existing fields and in completely new fields.

The state would get less money for its oil,  with initial estimates showing a first year revenue decline of $382-million.  But Parnell says he prefers to look at the alternative – more jobs in Alaska.

It’s clear that our resources are competing in a global market and in the long term this reduction will make the state of Alaska a more desirable place to invest, a greater magnet for those Alaska jobs that we need, and will keep oil flowing in the pipeline for years to come.

Anchorage Republican Mike Hawker, who sponsored the bill now in the House of Representative this year,  welcomes the governor’s joining the legislative debate on the state’s tax policy.  He calls it an “alignment” with how he and other legislators want to improve the state’s investment climate.

It’s a very important mechanical change.  I’m very, very encouraged to see the governor agreeing, because that, in and of itself, I believe brings the state of Alaska into a much more competitive situation on an international basis.

There are differences in the details between the Parnell and Hawker plans.  For example, Hawker would give a flat reduction in the base tax – from twenty five to twenty percent.  Parnell would keep the current rate for fields now in production but would cut the base to fifteen percent on new development.   Hawker says he sees a willingness to reach an agreement on that point, however.

Opponents, including Democrats, have been skeptical about the need for changing the tax and question whether the state will see the returns expected.

Both Hawker’s and the Governor’s bills will be formally read into the record after the session begins.



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