Administration, legislature fail to understand basic economics: new oil taxes can negatively impact state economy.

• Author: Langland, Marc
• Position: Editorial

The outcome of November's special session was a shock to Alaska's business community--and not just to the oil producers. The Alaska State Chamber of Commerce, local chambers, and a number of other business organizations passed resolutions opposing the proposed oil tax changes. I, along with other business leaders, was invited to testify before legislative committees during the special session, and we all expressed concern about the negative impact of these tax increases on the state's economy.

However, the administration convinced a majority of legislators to significantly increase oil taxes, reduce incentives for continued investment and development, and add several billion dollars to Alaska's state government revenues. The administration assured lawmakers that these revisions to PPT could be made without affecting oil company investments. The legislators, who voted for even higher taxes and fewer incentives than the administration's proposal, are confident that oil industry investment in Alaska will continue unchanged.

400 PERCENT INCREASE IN TAXES?

The business community does not agree--we know that, for any business, a significant and unexpected tax increase (in the case of the oil producers, a 400 percent increase over two years) reduces the money available to reinvest in the business and their communities. We know that a stable business climate is necessary to make long-term investment decisions, and instability in one sector will ripple throughout the economy. Businesses, like Northrim, which are publicly traded must also answer to a board of directors and shareholders, and if faced with a similar shock in business fundamentals, we would be imprudent not to look elsewhere for investment opportunities with a better return.

The wisdom and experience of Alaska's business leaders, and simple principles of economics, however, have been trumped by some legislators' desire to "cleanse" themselves of corruption charges while washing the state's economic future down the drain. Other legislators focused on how much money they could add to the budget for government spending "needs" that they believe are more important than a healthy private-sector economy.

MORE DECISIONS

This same legislature will soon convene for the regular session, and they face a number of critical decisions--whether or not to approve the administration's choice of a potential pipeline owner, how to fix natural gas taxes, how to resolve the public retirement funding...