Noted economist rebukes ‘giveaway’ myth
To help Alaskans better understand what’s at stake with Ballot Measure 1, economist Scott Goldsmith released a new analysis that concludes there is no “giveaway” and that Alaska should fare better under oil tax reform.
Goldsmith is professor emeritus at the University of Alaska Institute of Social and Economic Research (ISER), where he’s worked for the past 39 years, concentrating on the particular fiscal problems of an economy dependent upon the petroleum industry. Much of his work has appeared in the Fiscal Policy Paper series published by ISER since 1992.
In his presentation called “Sense and Nonsense,” Goldsmith presented his completed analysis of SB 21 vs. ACES and comes to four general conclusions:
• The so-called $2 billion “giveaway” this year under SB 21 doesn’t exist
“About 4 percent of the $2.1 billion drop in the fall oil revenue forecast for 2014 is due to the new tax. Most of the decline can be traced to lower price and production assumptions – as well as higher cost assumptions – in the forecast, and the effects of those changes on the tax rate. The rest of the decline is a one-time drop, with oil producers claiming credits expiring with the old tax.”
• Without enhanced production, future tax revenues could be higher under SB 21 than under ACES if recent price and cost trends continue
“Future revenues are very sensitive to oil prices and costs of production and are difficult to forecast. If current trends continue – if costs continue to rise faster than oil prices – the new tax could produce more revenue. But if conditions revert to those of past years, when production costs were lower, relative to oil prices, the old tax could produce more revenue. Among the factors contributing to rising production costs in recent years have been inflation in the price of inputs, maintenance of aging facilities, and development of marginal fields.”
• Under reasonable future market conditions, a modest increase in oil investment would create more state revenues under SB 21 than under ACES
“The tax change, combined with a modest increase in new production, would produce higher revenues under a reasonable range of assumptions about oil prices and production costs. New investment would drive up tax deductible costs in the short run – reducing production taxes – but that loss would be more than offset in later years by additional production tax and royalty revenues from new production, even at a lower average tax rate.”
• Investing new money into the oil patch creates long-lasting jobs and increased consumer purchasing power
“Investments that draw new outside money into the oil patch could create long-lasting jobs and increase consumer purchasing power. For example, $4 billion in new spending in the oil patch could add an average of 5,000 public and private sector jobs per year over 20 years, with more than $300 million of additional wages and salaries annually.”