Alaska editorial: Oil tax may be low, but it is bringing in money

Posted: Thursday, August 23, 2007

Alaska's new oil tax is a miserable failure, some people say. A report completed this month by the Palin administration would seem to back up that claim.

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But the shortfall is only part of the tax picture.

It is without question a less than desirable outcome to learn that the tax is bringing in about $800 million less than expected due to higher deductions being claimed by the oil companies. The industry's leading executives say the sharply higher cost of materials and operations are to blame for those higher deduction totals.

Whatever the reality, the revenue shortfall is being used now to bolster the case for speedy legislative action to again change the state's oil tax system.

An important piece of information continues to be conveniently avoided in the public rancor about whether the young tax, approved in the first half of last year, is working as planned. What people aren't regularly told is that the new tax is still expected to bring in about $250 million more in tax revenue from the oil industry this year than what the state would have received had the former tax system still been in place.

That's a quarter of a billion dollars, an amount equal to roughly two-thirds of what the state will spend on this capital budget.

Revenue for Alaska has gone up - not as much as people had hoped, but it has gone up.

Does the new petroleum profits tax need to be changed? Maybe. Or maybe not. Alaskans just can't know after one year whether the system will work as planned over the long haul.

What Alaskans can know, and shouldn't pretend not to know, is that the new oil tax has brought lots of new money.

The oil industry does need to be taxed at a level that gets Alaska the revenue it deserves for the resources that it allows others to develop. But impose too high a tax on those who will develop those resources and Alaska may see less in both revenue and resource development. Finding the right balance is difficult, but changing the tax structure year after year so that it maximizes revenue for the state even as global financial conditions change would put oil industry executives in the untenable position of trying to make sound investment decisions while on shifting sand. In such a situation they are likely to be even more cautious about where to invest dollars.

The state will receive a quarter of a billion dollars more this year than under the old tax system.

Alaskans need to remember that not-so-small fact.

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