'Sliding scale' to be introduced to bill that revamps state oil taxes

Posted: Tuesday, March 14, 2006

An amended version of the governor's proposal for a new oil tax regime may include a so-called "sliding scale" that would collect more tax on oil producers' profits when prices are high, says House Resources Committee Co-Chairman Ralph Samuels, R-Anchorage.

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Samuels said a committee substitute will be available today for members to discuss. For more than three weeks, lawmakers have picked at key issues of the bill: the tax rate, incentives for exploration, a $73 million daily tax-free allowance, payment for investments made over the last five years and an option to add the sliding scale.

Samuels did not give specifics, but said he wanted to make the bill "progressive" by including a provision designed to collect more taxes when oil prices are high.

"There will be some element of progressivity put into it," Samuels said.

The sliding scale kicks in when oil prices reach a certain level by increasing the tax rate for every additional dollar that the price of a barrel rises.

For example, once oil reaches $45 per barrel, a 20 percent tax rate could be increased by 0.25 percent for every additional dollar it rises. So if the price of oil reached $49 per barrel, the tax rate would rise to 21 percent of a company's profits.

Even a 1 percent tax rate increase could bump revenue to the state by $50 million or more per year, according to legislative economic consultants with Econ One Research Inc., who testified on the bill Monday.

Econ One recommended several options for the sliding scale, beginning as low as $35 a barrel and as high as $50 a barrel. The tax increases in their examples ranged between 0.20 percent and 0.35 percent.

Samuels said his committee's suggested numbers for the sliding scale may not stay in the bill through its entire process, but he at least wants to put the idea out there.

The governor's version does not include any similar provisions in which new taxes kick in at a certain dollar amount for oil per barrel.

Econ One also advised legislators to increase the tax rate to 25 percent, from the 20 percent suggested by the governor. That echoed the advice of two other economists hired by the Legislature, and the governor's top consultant on oil and gas issues.

Oil producers told lawmakers earlier that they can reluctantly agree to the 20 percent rate, but would not support a further increase.

According to an Econ One analysis that uses federal price forecasts and the state's production estimates, under the governor's proposal Alaska would earn about $750 million more each year than it does now. At a 25 percent rate, the state would take in an additional $450 million.

Gov. Frank Murkowski and several Republicans have said they support the 20 percent rate because it leaves producers enough leeway to explore on their leases.

Econ One Senior Economist Barry Pulliam said a 25 percent tax rate coupled with high prices would not deter investment.

"If every one of our consultants says that you can do at least a 25 percent tax rate, and we decide to leave $700 million to $800 million on the table by not doing that, that would cause me a lot of concern," said Rep. Les Gara, D-Anchorage.

• The Associated Press contributed to this report.

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