SitNews - Stories in the News - Ketchikan, Alaska


When it comes to oil taxes: Is it 'stick with it' or 'stick it to us'?
By Senator Kim Elton


August 26, 2007

Come October, the legislature must decide whether our oil tax regime is as tough as nails or as tough as Play-Doh.

I come down on the Play-Doh side. Others disagree.

Those who disagree point out the new profits-based tax brought in $250 million more than the tax it replaced. They argue rising exploration and production costs should be shared by the state through a profit-only tax that allows deductions for costs. That encourages continued activity in Alaska, they say. Finally, they suggest it's too early to decide whether the new profits-based tax is working.

All of these are points worthy of discussion. But there are counter arguments to these three 'stick with it' rationales that are quite persuasive.

First, the old tax was broken so suggesting an additional $250 million in receipts from the new tax is not a good argument to 'stick with it'. Last year, the legislature compromised on a profits-based tax on the premise it would bring in an additional billion plus dollars more than the broken old tax. The compromise solution last year still left us more than a billion dollars shy of the world average 'government take' on oil production.

This may be a glass-1/2-empty argument (or, in this case, a glass-3/4-empty argument since we only got a quarter of what was expected), but if we are going to look into the glass we can't ignore what is not there when the premise was it would be there. And, I reiterate because it's an important point, when it comes to oil tax glasses, Alaska's oil tax glass already is a lot smaller than tax steins other oil regimes around the world fill right to the brim.

Second, I'm not as sympathetic to the argument that Alaska must help pay infrastructure and other costs incurred by oil companies operating in Alaska by taxing net profits rather than gross. Why 'stick with it' when second quarter 2007 profits reported by the multi-national companies who also operate here in Alaska are sky high?

In the spring quarter, BP earned $7.38 billion and Exxon (the company that has stiffed Alaskans on court-ordered oil spill damages since the 1989 oil spill) earned $10.26 billion. The third major operator here in Alaska, ConocoPhillips, earned only $301 million because it had a one-time write off of $4.5 billion in the quarter when it pulled out of Venezuela rather than bowing to President Hugo Chavez's demand to convert their assets. (They need not worry about their Alaska assets.)

Finally, on this point, ConocoPhillips' annual reports show their after-tax profit margins in Alaska are double what they are worldwide. They are the only one of the three majors in Alaska that segregates Alaska profits, but we can assume BP and Exxon also do quite well in Alaska compared to their operations elsewhere. If not, maybe they could segregate their after-tax Alaska profits and report them the way ConocoPhillips does to prove me wrong.

Third, we waited far too long to 'fix' the old tax with last year's profits-based tax. If something is broken, let's fix it now.

The argument to 'stick with it' for a while longer is simply an argument to hemorrhage more state revenues. We created last year a new tax recipe that brought in at least $800 million less than we were told it would and subsidizes costs for wildly profitable multi-nationals that earn more in stable Alaska than unstable oil regimes elsewhere.

So, there are my counter arguments to those who want to 'stick with it'. The counter arguments at least introduce the idea the oil companies 'stuck it to us' in the battle that resulted in the profits-based tax enacted last year.


Received August 24, 2007 - Published August 26, 2007

About: Sen. Kim Elton (D) is a member of the Alaska State Legislature representing Juneau.


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