The phrase, “$2 billion giveaway” that was coined by those who want to repeal oil tax reform, has been used so often, including by this writer, that for many it’s believed to be a fact. Often quoted, and much respected UAA economist Scott Goldsmith took a hard look at the number and came up with something very different in a report funded by Northrim Bank, which is against repeal but funds a wide variety of reports about all facets of the state’s economy.
The “$2 billion giveaway is a myth,” Goldsmith told a crowd of about 200 at the Resource Development Council meeting on Thursday morning
While it’s true that the state is running at about a $2 billion deficit, the oil tax break isn’t what’s driving most of it, he said.
For one, to the extent that there’s a “giveaway” at all, it’s closer to $90 million. Much of the rest of the money is a result of lower production, lower prices, and rapidly increasing costs to produce the oil, costs that the oil companies provide to the state, and which we need more information about, he said.
Secondly, in the long run, reform will stabilize the tax system. At some prices the amount of taxes the producers will pay will be more under the new tax regime than under ACES. At some price points, it will be less. Why do the companies like it so much that they are willing to spend tens of millions to make sure that it’s not repealed? Because they believe that it will increase production
“The producers are not in business to minimize taxes,” Goldsmith said, “They’re in the business to maximize profit.” And the best way to do that is to expand and to increase the size of their operations, he said. He likened it to his wife getting a job. The family’s tax bill will go up, but the household will have more income. “We’ll be better off. And the treasury will be better off as well.”
Read Goldsmith’s presentation here.
Vic Fischer, who is the head the effort to repeal SB 21, issued a press release following the presentation. He’s sticking to his guns. “Goldsmith misses the mark,” he said and pointed to the $2 billion deficit has his proof.
“What Alaska needs is a tax structure that increases exploration for new oil and gas, not just provide incentives to pump the oil they are contractually obligated to produce,” he wrote.
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