NEWS: New Oil Tax Reform Bill Addresses Flaws in Alaska’s Meager Oil Tax rates

Rep. Les Gara

New Information Confirms a Zero Percent Tax Rate on Some Oil Fields

February 15, 2017

Juneau – Representative Les Gara (D-Anchorage) has released legislation to fix major flaws in Alaska’s oil tax system.  The flaws are outlined in information provided to Rep. Gara by the Alaska Department of Revenue in response to detailed questions.  The “Fair Share for Alaska Oil Act” supports Alaska’s North Slope oil producers while fairly raising revenue needed for schools, roads, and to help with Alaska’s budget deficit.  The bill was filed today with the Chief Clerk and more information is available here.

“We deserve more than a negative production tax,” said Rep. Gara.  “We need a fair tax that will be part of the comprehensive fiscal plan we need to get Alaska out of this cycle of crippling deficits.”

Information from the Alaska Department of Revenue shows Alaska charges a zero percent production tax rate on some fields and a minimal four percent rate on all other fields.  The low tax rates apply at current oil prices, and all the way up to when prices reach $70 a barrel, which is the point at which many companies will earn significant profits.  Currently, Alaska’s oil tax rate is so low that tax credits earned by oil companies are projected to exceed oil production tax revenue, which is unsustainable and negatively impacts Alaska’s fiscal health.

“I hope to work closely with the House Resources Committee so they can consider all proposals for a fair oil tax,” said Rep. Gara.  “You can’t fund schools, roads, or fix the deficit with a production tax that generates little or no revenue.  It’s not fair to Alaskans to ask them to pay to fill the state’s budget gap while some of the nation’s largest oil corporations refuse to chip in their fair share.”

Rep. Gara’s bill is intended to supplement House Bill 111, which was introduced last week to address the unsustainable subsidies given to the oil industry in Alaska.

“I look forward to reviewing Rep. Gara’s bill because we want to make sure that all good ideas are on the table so we can put together the best oil tax reform bill possible,” said Rep. Geran Tarr (D-Anchorage).  “Ensuring that we have an oil tax system that both encourages development and returns more value to the state needs to be a cornerstone of possible budget solutions.  The input of Rep. Gara is welcome and encouraged.”

Rep. Gara’s proposed legislation would slowly increase the current four percent minimum tax to ten percent as prices rise. At a price of $50 a barrel the minimum tax would increase to five percent and it would increase to six percent at $58 a barrel.  The minimum tax would then modestly increase by one percent for every $8 increase in oil prices up to a rate of ten percent at a price of $90 a barrel.    

According to the Alaska Department of Revenue, Rep. Gara’s bill would raise an additional $100 million in revenue at prices of $60 a barrel next year and roughly $170 million at projected prices the following year.  At $80 a barrel the proposed legislation would raise an additional $300 million in state revenue.

Rep. Gara’s bill features a lower tax rate on harder to produce heavy oil.  It also protects Alaskans at high prices and provides a fair increase in tax revenue to the State of Alaska when oil companies achieve very profits of $40 per barrel or more at high prices.  Rep. Gara believes the bill meets the concerns many oil companies had about high tax rates at high prices under the former ACES oil tax law, and his legislation does not impose as high a tax as ACES would have.  However, it provides a fairer share than existing law.  At $120 a barrel the bill would allow significant profits to oil companies while raising an additional $800 million in revenue for the State of Alaska.  Rep. Gara says the bill will encourage investment by ending the instability created by a tax that shortchanges Alaskans.

“Two things make oil taxes unstable and deter investment, tax rates like we have now, which tax too low, and a tax system that charges too much.  Under both scenarios, the calls for reform will continue and industry won’t get the tax stability they need,” said Rep. Gara.  “Until the current law is changed to be fairer to Alaskans as the owners of the oil resources, the calls to increase oil taxes will continue.”

For more information, please contact Rep. Les Gara (907) 250-0106.


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