How the oil industry benefited from tax progressivity

Don’t kick an industry that’s down on its luck. That’s one of the main messages two advocacy organizations sent to our Legislature via the Empire’s opinion page last week. They’re warning against raising taxes on the oil and gas industry while their profits are low. Unwittingly, they’ve made the case we should have tweaked the progressive tax rates of Alaska’s Clear &Equitable Share (ACES) instead of replacing them with the flat tax of Senate Bill 21.

 

I know ACES isn’t coming back. But I get tired of hearing these “poor oil industry” arguments all the time. Government either takes too much of their profits when prices are high, or doesn’t give them enough tax breaks when prices are low.

In May 2016, while the industry crusaded against proposals to eliminate SB 21’s tax credits, Kara Moriarty, President/CEO of the Alaska Oil &Gas Association (AOGA), reminded everyone how they’d been “battered by unprecedented low oil prices.” We all know how far they’d fallen. But to be “unprecedented” requires forgetting record high prices had dropped even more dramatically between June 2008 and the following January.

The important point to remember about that earlier period is the industry didn’t complain about ACES because it lowered their tax burden substantially.

And it would have again during the current oil price slump.

“The progressivity formula in ACES is very aggressive” the Keep Alaska Competitive coalition wrote not long after they helped fend off repeal of SB 21.

“It ramps up the tax rate quickly when values rise, but also ramps down quickly when values drop.” Making the same argument in January 2016, Moriarty acknowledged “the state would be paying more in credits at these lower prices AND collecting less revenue.”

That’s why the industry was fine with ACES from January 2009 till the fall of 2010. Then the market rebounded, their taxes went up accordingly, and they found a sympathetic ear in the Governor’s Mansion.

It took three legislative sessions for former Gov. Sean Parnell to replace ACES. But the flat tax wasn’t part of his first two proposals. That was only a feature of SB 21, which became law after three years in which oil prices hovered around the $100 mark.

And it included the tax credits Moriarty was trying to protect two years ago. She argued they were intended to remain a catalyst for investment even while prices were low. Regardless, their net effect at such times is the same as a progressive tax structure.

Only Sen. Bert Steadman, R-Sitka, recognized the credits were a problem. With Parnell and the rest of the legislative majority asleep at the wheel, the industry managed to keep a progressive tax benefit in SB 21 by calling it a credit. And it benefited only them.

Moriarty would never admit that. The authors of last week’s opinion pieces didn’t either. But they probably weren’t tuned into the earlier history because they aren’t from Alaska.

Laura Schepis and David Williams run out of state nonprofits that advocate for smaller government and low taxes. Both are corporate funded machines masquerading as grassroots organizations.

Schepis is the executive director of the Partnership For Affordable Clean Energy (PACE). She lives in Virginia, but PACE is located in Alabama, as are half of its 22 official partners. The Deep South is home to four others. And “clean” doesn’t belong in its name because there’s not one renewable energy advocate among them.

Williams is president of the Taxpayers Protection Alliance. Headquartered in the swamp of Washington, D.C., it once received a $1.1 million grant from Americans for Job Security, one of many dark money fronts connected to oil industry billionaires Charles and David Koch.

The primary concerns of Schepis and Williams are ideological, not the fiscal health of Alaska’s government. They’re not interested in the whole story. All they did was merge their libertarian philosophy with AOGS’s talking points.

We should dismiss their argument that instability — “seven significant changes in the state’s oil and gas tax law in just 12 years” — discourages investment. Because stability wasn’t a concern for the industry when it pushed to for number five, dumping ACES, along that path.

And the last two didn’t kick businesses operating under “razor thin profit margins” caused by “low commodity prices and global economic pressures.” Those changes took away a gimmick which let big oil take advantage of us.


• Rich Moniak is a Juneau resident and retired civil engineer with more than 25 years of experience working in the public sector. My Turns and Letters to the Editor represent the view of the author, not the view of the Juneau Empire.


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