Cash credits, tax deductions not the same
A compromise to end cash payments to oil companies is on thin ice because of the propaganda perpetuated by Anchorage Rep. Les Gara and the politics of the House Democrats. The oil and gas industry has always been Gara’s favorite target, and he’s launched a fresh campaign to hold hostage a compromise on cashable credits that will save Alaska a million dollars per day.
For the past decade, the state has offered tax credit incentives to new explorers on the North Slope for developing new fields and to small companies. The state offers to buy back these tax credits in cash, if these companies do not produce oil in Alaska.
The program worked, breathing new life into Cook Inlet and the North Slope. These incentives and a fair, competitive tax have drawn new companies to explore, develop and produce more oil. The larger, established companies like BP, Conoco, Hilcorp and Exxon are not eligible for cash credits.
Legislators and the Governor acknowledge the state can no longer afford cash payments for tax credits. They’ve been volleying versions of bills to end these payments for months.
Rep. Gara and his cohorts are telling Alaskans that the Senate proposal, backed by Gov. Walker, is a sham that simply replaces a credit today with deductions tomorrow, costing the state the same in the long run.
This is where Gara’s fish tale becomes dangerous misinformation. Cash credits and tax deductions are not the same. Oil companies can only use the tax deductions if they produce oil. We all know that many exploration projects never produce a drop of oil so deductions from those projects will never be applied to an oil company’s state tax bill. In exchange for eliminating these cash credits, the Senate Majority suggests that these explorers be able to deduct their exploration expenses against future profits. Gara calls this a sham.
Tax structures all over the world allow business to deduct their legitimate operating expenses and they allow companies to apply losses from their bad years against earnings from their profitable years. Gara again calls this a subsidy to the oil companies.
So why would Rep. Gara push his cohorts in the Democratic House Majority to refuse a compromise that will end these credits? Could it be that he smells the opportunity to slip a significant tax increase into the same bill and skin some more hide off the industry?
What Rep. Gara does not say is that there is little, if any, company profit left to tax. With oil around $45 per barrel, the state takes 77 percent of the sale value of a barrel of oil; the federal government takes 12 percent, leaving the taxpayer, the oil companies, with 11 percent. In fact, at all oil prices from very low to very high, Alaska takes more from a barrel of oil, than the companies who invest the capital and take the risk. Now Gara wants to raise these taxes again so Alaska gets its “fair share.” That’s ridiculous.
More oil in the pipeline is critical for Alaska, and we must fix our sights securely on that prize. With higher production come jobs for Alaskans, new money circulating through the economy and tax revenue to the state. New revenues from higher oil production go into the Alaska Permanent Fund, including the annual PFD.
The current oil tax system works. Alaska is collecting more tax revenue at today’s low prices than we would have under the previous system. Companies are now investing in the North Slope fields, resulting in increased production of three percent in fiscal years 2016 and 2017.
Gara’s House majority held Alaska hostage all session, demanding an income tax and excessive new taxes on the oil industry in return for passing things they actually agree on, namely: reducing cash credits, passing an operating budget, passing a capital budget and developing a long term fiscal plan.
Rep. Gara’s rhetoric isn’t new. He’s been at this for years now; he mangles the facts and conjures up sound bites that prey on people’s genuine concerns for children, schools, families and our seniors.
It’s time to do what’s right for Alaska, to quit playing games with the facts, fix the cash credits problem and pass a capital budget.
Hal Ingalls is president of Denali Drilling.
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