Recently, my husband had a milestone birthday, and after the party, kids walked away with helium balloon bouquets. Inevitably, as we were cleaning up, the popping sounds began. I can’t help to think that some political balloons are beginning to pop in Juneau.
Oil tax balloons
Now that oil prices have dropped, I’m guessing the interest in new taxes and increasing taxes on the oil industry will wane. This certainly will pop a few balloons held by those who’ve been giddy about oil tax bills moving along in the legislative committee process.
This brings to mind that I certainly had fun popping quite a few balloons in the Senate Resource Committee related to SB 92 not too long ago. I did a little poking while the eager beavers who want to raise oil taxes rushed SB 92 through and out of the committee. Would you like to know what I pricked with my pointy pin? Of course, you do! As a reminder, SB 92 is the new tax proposal on oil and gas S-corps. Here are some of the jabs I made:
- A corporate tax isn’t a severance tax; by imposing it as one, the bill butts up against the equal protection clause in the constitution.
- Massachusetts (a liberal state) has a 4.5% corporate tax and it doesn’t kick in until a company hits the $9 million mark. Why do legislators in Alaska want to impose a 9.4% corporate tax at the $5 million mark?
- Alaska’s corporate tax rate is among the top four highest in the nation. If we want to be business-friendly, shouldn’t we think about lowering it?
- SB 92 doesn’t create a level playing field – it creates an even more uneven one: an S-corp would pay $80 million more in taxes than a C-corp in the $1 billion scenario provided by a CPA to the committee.
- Changing tax regimes when we finally have federal cooperation for responsible resource development is not wise and absolutely terrible timing if we want to welcome companies to Alaska and grow our economy.
My two favorite zingers
- Hilcorp provided $191 million in state and local taxes in 2022 to two states, New Mexico and Colorado, based on its work in the San Juan Basin. For roughly the same amount of oil production, Hilcorp provided $1billion in state and local taxes and royalties for its work to one state in 2023: Alaska. This was a double-pop because Hilcorp testified that the cost to do business in Alaska due to the short season, the cold, the lack of roads, the distances, etc. in many cases is about ten times more expensive than their work in the San Juan Basin. Let me say that again: ten times more expensive. And the oil tax eager beavers want more than the $1 billion/year Alaska is already getting? Time for a reality check!
- Last but not least. The Resource Committee was promised that we would be provided an independent analysis and modeling of the proposed new tax, so we would know how the tax would impact oil production, revenue, royalties, capital investment, jobs and the economy. We never received anything to even remotely give us an indication of the impacts. My final balloon punch was that it was absolutely wrong to pass the bill out of committee without this information. It is the Resources Committee’s job and jurisdiction to study and review this, as our constitutional duty is to ensure we are managing our resources to the maximum benefit for the people of Alaska. The committee did not do that. The oil tax eager beavers couldn’t be bothered.
An important side note:
Is NEA sending out action alerts to support oil taxes?
Maybe, maybe not. The testimony supporting the oil tax bills sure sounds like it. More than half the testifiers tie the taxes to wanting more money for K-12 education.
They all need to go back to school and study the Laffer Curve theory. If we raise taxes on the industry, we will be at the point of negative return. Not smart.
Do they not know that taxes impact behavior? Apparently, they somehow missed that in economics class. Increase the taxes on cigarettes and people buy fewer cartons and smoke less. Increase the taxes on oil, we’ll end up with less capital investment, less oil, less revenue, fewer jobs, and a lower GDP than we would otherwise. Oh, and a tougher time coming up with enough funds for schools.
If we want adequately funded schools, we probably shouldn’t kill the goose that lays the golden eggs.
Income tax balloon
It initially snuck under my radar, but since it would impact many Alaskans, I wanted to make sure you were aware that Rep. Alyse Galvin introduced HB 152 a couple weeks ago. The bill would implement an income tax of 4% on single earners with an income over $150,000 and joint filers over $300,000. In addition, everyone would pay a flat tax of $150. The income tax is disguised as an “education tax” but because our constitution does not allow dedicated funds, the proceeds could be used to pay for anything in the state budget.
If the bill were to gain traction and pass, you can bet your bottom dollar that the threshold and rates would change over time to capture more Alaskans and more of their earnings. HB 152 is the seemingly harmless camel’s nose under the tent.
From many conversations on this topic with Alaskans over the years, I’m quite sure there’d be a lot of people ready with a pin to pop this income tax balloon.
