My turn: Why give tax breaks to oil companies?

Posted: Friday, April 08, 2005

I never understood why the Legislature gave tax breaks and incentives to oil companies last year. In a time of budget problems it seemed inappropriate and ill advised.

I've always subscribed to Adam Smith's Invisible Hand theory; basically, Smith says there should be no outside influence on services, commerce or markets. The buying public would set the value (and eventual price) of a product or service. Neither seller nor buyer gets any outside advantage and in the end the greater good of everyone is served.

Remember the so-called "economic limit factor" (ELF), a complex formula used to give tax breaks to oil companies for smaller oil fields or wells that produce less oil and supposedly, less profit. The practical effect behind ELF is, "let oil companies buy Alaska oil at a low price because they are taking a gamble and may not make a profit." I'm sure the legislators who voted for ELF believed that. Nobody else did.

Now, going back to Smith's Invisible Hand theory, last night at the gas pump I put 15 gallons of gas in my truck and it cost me $34.35. Wow! I looked over at another pump and the meter read 22 gallons pumped, and the total sale was $50.38. A person earning minimum wage would work about eight hours (after taxes) to pay for 22 gallons of gas. At forty hours per week, it would take one-fifth of their weekly wages to buy that tank of gasoline. Notwithstanding the need to conserve oil, something is very wrong in the Great Land.

On the short drive home I figured it out. The ELF, tax breaks and other incentives are a modern-day corporate welfare, a legislative version of the Reverse Invisible Hand theory; unlike the original theory which shuns tampering or outside influence, today's version has the Legislature's invisible hand in your wallet taking money from you to give to the oil companies.

Here's how it works. The Legislature gives tax breaks and incentives on the assumption the oil companies might not make money. Oil companies "bought low." We go to the gas station and buy very expensive gas; the oil companies are "selling high." And then billions and billions of dollars in higher oil company profits. I guess the assumptions were invalid that oil companies would lose money. Who knew?

Now, don't get me wrong; I have no problem with oil companies selling gas for a fair profit. What really chaps me is paying a $34.35 gas bill and knowing that the oil company is making more profit because our Legislature sells so low. They stuck their "invisible hands" in our wallets last year and gave money to oil companies upfront. Now the oil companies are hitting us on the back side. With the Legislature working with oil companies, the oil companies can't lose. Only you, I, and Alaska can lose. There are two questions here: why did the Legislature allow such a sweet deal, and now that we all know the Legislature was co-opted, will something be done about it?

You've probably figured it out by now; you are paying twice. Giving tax breaks and incentives to oil companies takes money out of the general fund. That means less money for municipalities (read, higher local property or sales taxes). Then, you get to pay again with inflated prices at the pump. In addition to high profits at the pump, the oil companies get legislated corporate welfare at the same time.

The governor is right on this one. It's time to change the tax regime. The bill to wipe out Alaska tax deductions for oil companies is in harmony with Smith's Invisible Hand theory. When the oil companies make more money, Alaska should make more money. Everyone benefits.

I'm willing to pay a fair market value for gas at the pump and the oil companies should be willing to pay a fair price at the well head. Every Alaskan will be watching the Legislature very closely on this one. Watch their hands.

• Joel Casto is a Juneau resident.

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