I hear it all the time: “The oil tax giveaway created our budget problems;” “We wouldn’t have a budget problem if the oil companies weren’t stealing our oil;” “Those corrupt politicians are giving our Permanent Fund Dividend money to the oil companies;” “Oil production declined this year, so Senate Bill 21 is failing.”
The problem is, these make for good sound bites. But the truth doesn’t fit on a bumper sticker. This political rhetoric is intended to create an emotional response — anger. And that anger is intended to redirect your attention from the real problem. But, debating issues under a cloud of emotion blocks out the ability to have rational, informed discussion.
I spent the last few weeks analyzing the oil tax issue from a data driven perspective. Here’s the bottom line.
First, the budget issues we are facing today were caused by a fall in oil prices. They would exist regardless of the tax system.
Second, the production increases we have seen over the last two years are largely coincidental. While SB 21 probably put a little more oil in the pipeline, we wouldn’t have noticed if not for other events that would have probably happened under any tax system.
Third, company net income is higher in Alaska because the infrastructure is 40 years old and fully depreciated; not because they don’t pay as much in taxes. And the comparison to the Lower 48 is misleading, seeing as you are comparing conventional oil production here to unconventional and expensive oil and gas production down there.
And finally, the companies and the state are collecting about the same amount of net revenues for oil production in Alaska. In Fiscal Year 2018, the combined companies posted about $2.1 billion to their bottom line; the state collected about $2.1 billion in tax and royalty payments. To most people, that sounds fair.
None of this means that the current tax system is perfect. I’m not suggesting we ignore the issue of oil taxes altogether. But, I am suggesting that if we use oil taxes as a scapegoat for the larger problems we are facing, we will fail to address them.
If you’re still convinced these issues stem from SB 21, imagine the world in which the SB 21 repeal effort in 2014 was successful.
Oil prices would have still collapsed later that year. State revenues would have still fallen to under $1.5 billion in FY 2016 and FY 2017. The same decision to veto the PFD would have faced the governor.
The same conversations about oil tax credit purchases would have been had, probably resulting in the same decision to eliminate the program.
That would have left us with the same conversation about how to clear the books of past credits while also talking about reducing the PFD.
We probably would see a little less oil production, and we would hear a lot less about it. But the same announcements of major discoveries would probably still occur.
The federal government would have made the same decision to open ANWR. And the same realization that Alaska is still a world-class oil basin would still be going on. We probably wouldn’t be talking about how ACES created this excitement.
I would probably be reading about how the repeal of SB 21 is the cause of all our budget issues and the reason I’m getting half a PFD.
But, at the end of the day, we would still have the same budget problems.
The bottom line is that oil taxes are only one part of the equation. The sensational Twitter posts and bumper sticker explanations of complex issues are not helping. In fact, they are probably distracting us from finding solutions to the real problems.
Look, the oil companies aren’t stealing your PFD. The politicians didn’t give anything away. The fiscal crises we are facing has nothing to do with oil taxes. SB 21 didn’t cause our problems and it will not cure them.
Our problems are more fundamental. They are real and systemic. We need to address them head-on. And that needs to involve an honest conversation about the PFD, about the role that we want government to play in our lives, and about how we want to pay for those services.
• Ed King is the Principal Economist at King Economics Group. He lives in Juneau. My Turns and Letters to the Editor represent the view of the author, not the view of the Juneau Empire.
