We channel our inner Mark Twain today (with help from economist Roger Marks) as we review the press release of March 11th from those supporting the oil tax initiative, highlighting “the things they know that just ain’t so”
What they know? “The current tax law , SB 21, hurts Alaska most when the price of oil drops. Currently Alaska gives an $8 per revenue barrel credit, or $1.1 billion per year, for oil produced from Alaska’s three largest and most profitable oil fields Prudhoe Bay, Kuparuk and Colville River.”
It just ain’t so…Under SB 21, at current oil prices, the per barrel credit isn’t used in the tax calculation. SB 21 is a higher of a)net calculation or b)gross calculation. The gross calculation is higher until prices get to about $65/bbl and is obviously in force now.
What they know? “”When oil prices drop, the current tax law under SB21 makes an already bad situation even worse. As the pie gets smaller when oil prices drop, our slice of the pie gets even smaller yet because of SB 21.”
It just ain’t so…Oil prices have hovered around $34/bbl this week. Transportation costs are $9bbl and average production costs are $24/bbl. Net value to the companies before taxes and royalties is $1/bbl. A pretty small pie. Under SB21, the property and production taxes and royalties total $7/bbl. State taxes and royalties take up more than $100% of the pie. Seems like a pretty big slice for the state.
What they know? “Vote Yes does not believe Alaska can afford to continue taking so much downside risk of dropping oil prices while continuing to subsidize multinational companies…”
It just ain’t so…When the state makes $7 and the producers lose $4, who is taking the downside oil price risk? Hint: it isn’t the state.
If the sponsors of this tax initiative don’t understand the basic details of how the current tax law works and are misleading Alaskans with things that just ain’t so, should we trust them to craft future tax policy?