Friday, July 07, 2006

Petroleum Profits Tax Or Gross Value Tax? - Alaska Battle Shaping Up

As the July 12th start date of the next special session of the Alaska State Legislature approaches, momentum to scrap the idea of a petroleum profits tax and pass an updated version of the current gross value production tax is beginning to build. Click here for a KTUU story on legislative efforts and here for a KTUU story on efforts by Republican gubernatorial candidates John Binkley and Sarah Palin.

Democrats are trying to build momentum for sticking with the current oil production tax system, which bases the tax on the gross value of oil, as opposed to the profits-based system recommended by Alaska Governor Frank Murkowski.

The governor's proposed that we move to a new system that taxes as a percentage of what Exxon reports as the profit on every barrel of oil. That is risky,” said Rep. Eric Croft, a Democratic candidate for governor.


Democratic legislators hailed yesterday's announcement by two top Republican lawmakers that they want to stick with taxing oil production through the gross value of a barrel. The Democrats say this improves the chances of introducing their longstanding proposal for a sliding oil taxation scale into the Legislature.

What you should do is aim for something that provides something very close to an equal share between the oil companies and the state. Right now we're a junior partner. This year we're on pace to send out about $7.5 billion in corporate profits to Houston, to London, to the Outside oil companies, and we're on pace to take about half of that,” said Rep. Les Gara, D-Anchorage (pictured above left).


Republican gubernatorial candidate John Binkley (pictured at left) gave the "gross value" forces a positive bump when he came out against the idea of a profits tax and in favor of a gross value tax. Binkley wants taxes based on the gross value of oil production, not profits that are more easily manipulated. He claims Murkowski no longer has the public’s backing to handle the deal.


As I have traveled around and spoken with many Alaskans and listened to Alaskans, it’s clear to me that they have lost trust in this governor and there is no way that this governor can propose and move through a gas pipeline when he does not have the trust of the people,” said Binkley. Two lawmakers who oppose the governor's deal, House Speaker John Harris and Senator Tom Wagoner, appeared with Binkley.

We need somebody, quite frankly, who will listen, not only to the legislators, but to the people of the state of Alaska. I think unfortunately that that’s been a real problem with this administration is that the governor and he’s even done his own ads that say he’ll get a new facelift, so to speak, but it’s a little late for that,” said Harris (pictured above left).

The third Republican gubernatorial candidate, Sarah Palin, is fishing in Bristol Bay, but she was reached and had this response to the Binkley statement: “I commend John Binkley for his statements against a profits-based oil tax and a flawed gas line contract for Alaska. This echoes our longstanding message,” said Palin.

But Murkowski says he has done what no other governor has -- delivered a contract to the Legislature. And he says if lawmakers fail to take action on it, they bear the responsibility of the lost opportunity.

“As far as out administration is concerned, we’ve got a deal. It’s up to the Legislature now and to suggest you’re going to change the deal now dramatically means that you put the peril of a concluded contract with the producers at risk,” said Murkowski.

Democratic Rep. Les Gara says Binkley’s tax idea on gross oil sales is not new. He says Democrats attempted to introduce similar legislation for the last few years. The question becomes what is the proposed tax rate, and Binkley did not provide specifics.

Ralph Samuels, a key House Republican, says he's trying to salvage the concept of a petroleum profits tax, looking for a compromise on the rate. Samuels says a tax on the gross could be a last resort in the special legislative session that starts Wednesday. “If you wait till the next legislative session to do anything, then you have the same debate until the following May, and now how much the people of Alaska have been short-changed greatly. So we need to keep working on it, and I'm still hopeful that we get something and do a right, correct fix,” said Rep. Ralph Samuels, R-Anchorage.

Meanwhile, the Murkowski administration and some Republican legislators are taking aim at a tax on the November election ballot -- a measure that would cost North Slope producers $1 billion a year until they construct a natural gas pipeline. Senator Ralph Seekins (R-Fairbanks) fears the gas reserves tax, if passed, would prevent a natural gas pipeline from being built.

You bring it to the people, you don't let them know what the whole story is, it's never discussed in committee, you don't see any of the black holes, and then it's demagogued as perverting the will of the people if you try to avoid something that could have an absolutely devastating effect,” said Seekins,

This is the senator that proposed to make it illegal for people to respond on ethics complaints, to exclude the people from the political process,” Croft retorted. “I want to include them.”

The petroleum tax is part of the governor's gas pipeline deal and is intended to give fiscal certainty to the producers if they pursue the project. Conversely, the sponsors of the reserves tax say it's intended to make sure the producers do move ahead. But even if voters approve, the fiscal contract that the governor negotiated with the producers would exempt them from the reserves tax.

Analysis: This could be a legitimate debate. It would be useful to see what type of revised gross value production tax would emerge and if it could not only give us a better revenue stream, but still be acceptable to the producers. At the same time, to allay the concerns of those who believe the producers could manipulate profits to escape triggering escalator clauses, provide a sufficiently narrow definition to preclude the occurrence of this problem. In any event, it is imperative that an oil tax of some sort emerge from this special session so we can start moving forward on the gas pipeline.

One final note: Initially, I thought John Binkley was somewhat of a lightweight. However, his proposal to terminate the LNG gasline at Kenai rather than at Valdez to spread the wealth out, combined with his ideas on oil taxation, improve the substance and relevancy of his candidacy. He also seems to have developed a working relationship with House Speaker John Harris, a not insignificant ally. I can now consider him to be just as serious of a Republican player as Palin and Murkowski. His reputation as a Ruedrich "insider" may be less of a problem than we thought.

Related Previous Posts:
Full Senate Passes Petroleum Profits Tax, May 23rd, 2006
Senate Finance Committee Passes 22.5% Petroleum Profits Tax, May 20th, 2006
Alaska State House Passes Oil Tax Bill, May 9th, 2006
House To Act On Senate Oil Tax Bill, April 27th, 2006
Full Senate Passes Oil Tax Bill, April 25th, 2006
Proposed New Alaska Petroleum Profits Tax, April 9th, 2006

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