My Turn: Promises, promises

The oil industry hoped for a big tax break and they got it. Now the industry is protecting their windfall with a flurry of ads boasting of increased interest in Alaska. Who would not invest more in Alaska if you suddenly could take billions more in profits out of the state? And what did we, the owner state, get in return? A wink and promise of future oil development? No binding quid-pro-quo – just a lot of hope.

Economists often deal with two distinct problems. First, is measuring alternatives to determine which one has the biggest bang for the buck, regardless of whom the benefits accrue to. And second, identifying how the benefits are distributed among interest groups (who benefits and who pays). Concerning SB21, the oil industry is the beneficiary and who pays is the owner state.

Promoters of SB21 will hype Dr. Scott Goldsmith’s analysis because it shows only a 4 percent loss in oil revenues due to SB21. There are two points to be made here. First, a loss is a loss. Second, Dr. Goldsmith, an economist with the University of Alaska Anchorage Institute of Social and Economic Research, correctly states the other revenue losses (96 percent) were due falling oil prices and production that would have occurred anyhow.

Note the small effect of SB21 on tax revenue speaks volumes. In other words, our tax structure has little to do with our well-being in the global market place. In reality, the industry has many well understood opportunities outside of Alaska. We are simply one of the many options which are basically cued up for future development. Most important, no one has offered any systematic analysis that Alaska taxes can significantly change these priorities.

Case in point, compare the history of oil production of the new up-start (North Dakota) to Alaska. What is the probability of our tax structure overriding North Dakota’s lower production costs, closer proximity to markets and greater profitability?

Unfortunately, SB21 was also sold under the mantle of rosy assumptions about Alaska’s oil future. These conjectures have always been vague or incomplete. Simply, our competitiveness will depend on future oil prices and our relative production costs to the rest of the world. Who really believes that Alaska’s oil taxes spawned North Dakota’s oil boom?

Other disingenuous spins of SB21 are the rosy “what ifs.” Again, these conjectures are designed to bolster our hopes rather than to better inform us of real trade-offs. For example, the potential benefits of “a billion dollar oil investment” and the resulting jobs and revenues. Nice cocktail conversation, but not too enlightening since it’s just conjecture. The bottom line: there was no binding quid-pro-quo agreement for future industry investments in return for the big tax breaks. That says it all.

So with no binding quid-pro-quo, SB21 simply redistributes oil wealth from the owner state to the industry. And, the owner state is to be content with some trickle down abstract benefits, which will occur sometime in the future. Now that is a lot of hope against hope.

Fortunately, the owner state can reevaluate its hope and options. We can make our own judgments about industry’s motives and genuine good will. As it stands now, SB21 is definitely more about income redistribution (welfare) than economic development.

If Alaska does buy into the very implausible trickle-down economic bargain, then we truly get what we deserve.

• Joe Mehrkens is a retired forest economist residing in Petersburg and Juneau.

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