As the State of Alaska grapples with our current fiscal situation, legislators are considering ways to balance the budget while protecting our savings and preserving the PFD. I urge my colleagues to focus on an important part of the discussion: oil taxes.
Alaska is the only state in the US that taxes oil based on net profits, yet we are also the state that relies the most on oil revenues for government services. Unique among states, Alaska is also the owner of the resource: most of our oil has been produced from state owned lands. This also means we collect the landowner’s royalty in addition to the production tax.
When SB21 passed in 2013, the expectation was that “government take” would be about 65% of profits. With lower prices, reduced company spending, and the federal tax cut, current totals are much lower. The latest analysis shows the between the royalty, production tax, and other taxes, the state currently receives a bit over 40% of profits, the federal government around 10%, and the producers close to 50%. What this tells us is that our oil tax is not performing as intended.
Over the past three years, the legislature has solved some of the problems, including eliminating tax credits that could be exchanged for state cash. But the basic pieces of the tax itself have not been changed, and it’s probably time to look at this again.
The easiest way to approach this issue is to reduce the deductible per-barrel credit. The House Majority Coalition in 2017 passed a bill that would have eliminated the credit and reduced the base tax rate. Had it become law we’d be collecting close to another $700 million per year, which I believe would be enough to pay a fair dividend without having to harm our schools, health care, and ferries. I hope that next session we’ll have a more comprehensive conversation about how we can truly build a sustainable budget model for Alaska.
Thank you to everyone who has already reached out to my office on this issue, and please don’t hesitate to email me at Rep.Dan.Ortiz@akleg.gov or call me at 907-247-4672
with any suggestions or concerns.
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