When proponents of a tax increase resort to the age-old argument that it is justified because those prospectively subject to it are paying less than their “fair share,” observers safely can make two assumptions. First: The proposed tax increase cannot be justified on the basis of standard public finance principles. Second: Those being threatened are a political minority. Those truths are confirmed by Alaska Ballot Measure No. 1, the “Fair Share Act” (FSA)---the proponents see no need to be subtle---to be decided by state voters this November.
Under current Alaska tax law, oil producers pay the larger of a 4 percent gross tax or a 35 percent net profits tax after application of an $8 per barrel production credit. In brief, the FSA would impose a minimum “gross” tax rate of 10 percent, rising up to 15 percent depending on the market price of the oil produced (net of transportation costs); and it would eliminate the current $8 credit per barrel while imposing an additional 15 percent tax to the current “net” rate of 35 percent of per-barrel “net profit,” a concept vastly more slippery than commonly recognized. For example, the FSA would disallow the deduction of purportedly “unrelated” costs that apply to more than one producing field; but such joint costs are necessary and thus are very far from irrelevant in terms of investment decisions. The new taxes under the FSA would apply to a given field only after 400 million barrels have been produced and if the production rate was over 40,000 barrels per day (bpd) for the previous year.
Read Full Article »
