Why Alaska is Reconsidering Texas-Inspired Oil Tax Cut

Alaska funds its state government largely by taxing oil production. But last year, faced with dwindling production, the legislature narrowly passed tax cuts to lessen the burden on energy companies in hopes of encouraging more drilling and generating more tax revenue.

One Alaska lawmaker said they looked to the Lower 48 for inspiration.

“Because we kept hearing all the booming oil work that is being done in Texas and North Dakota and people said hey, that just goes to show you, Texas has a lower tax rate. And that just goes to show you how increased taxes are causing less exploration and development here in Alaska,” said Alaska State Sen. Bill Wielechowski, a Democrat from Anchorage.

Do Taxes Matter?

Texas has a severance tax of 4.6 percent on the market value of oil as it comes out of the ground, one of the lowest rates among major oil producing states. Alaska previously taxed the profits of oil companies at a 25 percent rate. Then, under a new tax bill passed last year, the rate was reduced to approximately 14 percent.

But production — and tax revenues — kept shrinking. Now, there’s a referendum set for this August to repeal the tax cuts. BP, ConocoPhillips, and ExxonMobil are paying for TV ads to defeat the referendum, contending that the tax cuts were already starting to spur more drilling and that in time, a “better investment climate…will lead to increased oil production, more jobs” and more tax revenue for the state.

More at http://stateimpact.npr.org/texas/2014/04/29/why-alaska-is-texas-oil-tax/ .

Cross-posted in General Discussion.