The debate over oil tax reform in Alaska is looked at from many different and conflicting perspectives. The oil companies looking for more return on investment seek more incentives and a lower state “take.” Small and medium businesses seek a sustainable economy so they can grow and provide jobs. Environmentalists cringe at our heavy dependence on oil for the state’s economy. Advocates for government programs to solve real problems seek additional spending. Too often, complex problems like this one get boiled down into a choice between right and wrong, pro-oil or anti-oil, and those who would harvest now or those who would give our oil away.
From my perspective, this important issue is best understood as a very difficult choice between taxing our state’s primary industry to the point where it continues its painful decline and encouraging that same industry to invest in a long term program of increasing exploration and production. It’s a difficult choice that most of us — who are not experts in oil production, petroleum economics, or tax policy — have a hard time understanding to the point where we can make an informed decision.
The choice is made even more difficult when it is framed in false terms. Such is the case when it’s framed as one between oil taxes and education. The argument basically says that we must continue to tax the oil companies at the highest rates in the country so we can pay for education. The argument does not acknowledge that Alaska already leads the nation in its funding for education and is routinely at the bottom of the pile when it comes to such standard measures of educational progress as high school graduation rate, college going rate, and college graduation rate. I am about as pro-education as a person can get, but it’s crystal clear that spending more on education does not in and of itself drive student success, not in Alaska anyway. And it’s just as clear that taxing oil companies at the highest rates in the country does not drive increased oil production.
I know some folks still subscribe to the old Alaskan bumper sticker, “we don’t give a damn how they do it outside.” But those of us who really care do take time to look outside at how others do it, especially when they are really doing well! One interesting case is North Dakota, which can teach us something on both oil taxes and education. Long before it overtook Alaska in oil production — fueled by new technology, lower oil taxes, and skilled Alaskan workers — North Dakota dominated us in education, regularly leading the nation in its high school graduates’ SAT scores and graduation rates, and its college graduation rates, all the while spending a fraction of what Alaska spends on education.
Now don’t get me wrong, I would not ever trade Alaska for North Dakota. But when I see their oil production on the rise while ours declines and their schools succeed while ours struggle, I have to think they have got something right. On the oil production front, their tax regime does not punish increased profits, like Alaska’s unbracketed progressivity system does, taking away incentives to increase production and profits. And on the education front, they understand that employed parents and economically sustainable communities play a much larger role in their kids’ educational success than how much they spend on schools. I am not suggesting that schools are not important — they are! — but what happens at home and in the community is a much more important factor in how our kids perform.
The common denominator, as I see it, is that we need to take responsibility for our state’s natural resource and human resource development. We need to encourage investment in the factors that drive increasing oil production and in those factors for educational success over the long term. In neither case should we expect an instant, one-for-one, response. But based on at least one other state’s experience, the odds are good that reducing oil taxes will contribute to increased exploration and production and the resulting jobs for our state. And good jobs lead to improvements in the socioeconomic status of parents, widely known to be the single strongest predictor of our kids’ educational success.
• Johnsen is a member of the Make Alaska Competitive Coalition.