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Week 6: Ending the Complexity of Progressivity

Governor Parnell's Weekly Oil Tax Message

There is a groundswell of support here in Juneau to increase opportunities for Alaskans through
oil tax reform.

Legislators, experts, and an overwhelming majority of Alaskans understand the current tax system is broken.

They have studied, and they have seen that around the world, oil-producing jurisdictions are reaping the benefits of high oil prices and advanced technology.

The same cannot be said for Alaska. Progressivity, the central part of Alaska’s current tax system, remains the single biggest roadblock to investment and new production in the State.

Progressivity limits Alaska’s competiveness, especially at high oil prices, and the credits used to balance progressivity in the current system, they leave the State treasury at risk at low oil prices.

When oil prices fall, the risk to the people’s money in the treasury would be devastating.

In the next year alone, the State is on the hook for nearly one billion in tax credits, regardless of the price of oil. You know, hoping that oil prices remain high to avoid going in the fiscal hole is not a good strategy.

We know that under progressivity, companies spend their time and resources calculating complex monthly tax rates, instead of making long-term development plans.

With a tax rate that fluctuates monthly, and higher than other jurisdictions, it’s easy to see why companies are reluctant to spend billions of dollars on large scale projects.

Our bill ends this tangled mess of progressivity calculations. Instead, we want to provide a clear and simple tax rate, one fully transparent to Alaskans.

Our bill better protects the state by restructuring the credit system to provide more revenue at low oil prices, in exchange for lower revenues at high oil prices.

I applaud the Senate Resources Committee and its Chair, Cathy Giessel, for their hard work and diligence. Their commitment to simplicity and the elimination of progressivity are substantial steps in creating a future for Alaskans.

We have more work to do on the bill. But, above all, I appreciate the committee’s pledge to pass legislation that meets my four guiding principles for oil tax reform: one, that any change must be fair to Alaskans; two, it must encourage new production; three, it must be simple so it restores balance to the system; and fourth, it must be competitive and durable.

Alaska’s future is at stake. Let us meet the challenge, reform our oil taxes and create economic opportunities for generations of Alaskans.