Create an alternative minimum oil tax

Posted: Thursday, October 25, 2007

The following is a simple yet possibly helpful suggestion for resolving various complex and somewhat conflicting objectives related to oil taxation in Alaska. Both the Petroleum Profits Tax (PPT) and the Alaska's Clear and Equitable Share (ACES) plans are complex methods designed to increase investment in Alaska, but they are subject to various difficulties predicting costs. A gross per barrel tax avoids the need to project or control costs and sets a more reliable base income, though it is smaller in times of high oil prices, and does not provide the incentives for reinvestment of excess profits in good times.

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The suggested resolution is this: Make a gross tax an alternative minimum petroleum tax to the PPT or ACES or whatever incentive-based plan which might be preferred. The gross tax used as a minimum should be a function of current oil price and the field to which applied.

When setting out to establish the PPT, the objective was to fairly increase Alaska's share in this time of unexpectedly high oil prices. A alternative minimum tax is merely a common sense guarantee that a new net tax scheme will not result in an unintended loss of revenue for Alaska due to unexpected circumstances.

The alternative minimum tax guarantees the state a more sound baseline from which to budget, while in good times achieving many of the varied objectives of the PPT or ACES, even from an oil company perspective. The alternative minimum tax mitigates cases of unforeseen circumstances or cost manipulations which in future hindsight could make the PPT or ACES appear to have been a bad choice for Alaska in comparison to the previous gross tax structure. It might avoid future needs for legislative intervention. Achieving sound boundaries on tolerable costs requires a more complicated minimum tax structure than the proposed ACES floor tax. Though a bit more complicated, the alternative minimum tax protects Alaska's baseline revenue while meeting other objectives of the PPT or ACES. It provides the legislature with a safer wiser choice for Alaska's future. It is a win-win for Alaska.

Horace Heffner


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