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Here's proof that Senate leaders haven't done enough homework on plan to cut oil taxes

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Posted: Wednesday, March 20, 2013 8:45 am | Updated: 4:29 pm, Wed Mar 20, 2013.

The danger in Juneau is that our legislators will be lulled into thinking that a percentage point here and there on the oil tax bill is not worth worrying about.

But think of it this way— a percentage point here or there could be enough to run the Fairbanks school district for a year with no property taxes.

On Tuesday, Sen. Kevin Meyer, the co-chairman of the Senate Finance Committee, said something that proves our lawmakers haven't finished their homework.

Meyer was defending his version of the tax cut bill on the Senate floor when he made an incorrect statement about a key provision worth hundreds of millions of dollars.

I'm referring to the proposal to reduce the base oil tax rate from 35 percent to 33 percent on Jan. 1, 2017. Meyer said in a floor session that the oil companies would get this tax break if oil production increases in 2014-2016.

But the language in the bill says that the tax would drop from 35 percent to 33 percent regardless of what happens to production. This is not a small item.

The 2017 decline would mean a tax cut of a few hundred million dollars or more, depending upon oil prices.

After Anchorage Sen. Hollis French asked for the reasoning behind the change from 35 percent to 33 percent in 2017, Meyer said it was contingent upon oil production increases.

"The intent here was to keep the base rate at 35 percent like resources (Senate Resources Committee) had it, with the understanding that if the oil companies do indeed increase production, which is what this is all about, we're just trying to get more oil in the pipeline,  that's why you see everything that is in this bill is geared toward more production, that if indeed they do do what we've asked, then the new tax rate then would go down to 33 percent. And that would be the rate thereafter, after three years," Meyer said.

When French asked if there is any language in the bill that would require increased production to get the 33 percent rate,  Senate President Charlie Huggins called an "at ease" and the proponents of the tax cut bill conferred privately.

A few minutes later, French asked about it again. "Is there some mechanism in the bill that is tied to that reduction in tax or does it go into effect automatically without any other investment or production?"

This time Meyer did not say that the tax cut was linked to increases in production. "No, after three years it goes into effect automatically," he said.

He did not explain his earlier statement.

Senate proponents of the tax cut agreed in private that they would vote to remove this 2017 tax cut from the bill, which is what they did Wednesday by an 11-9 margin. The swing vote was Sen. Click Bishop of Fairbanks.

But hold on. The discussion in Alaska on the 2017 tax cut should not end so quickly.

It would be good to know how and why this language got into the bill and why the  leader of the finance committee thought that the tax cut was contingent on increased production.

Who else in the Senate believed as he did? And what other parts of this complex bill are not understood?

Last Wednesday Meyer proposed a tax cut that was too steep for a majority of the Senate to stomach. This was the one that a consultant said had such high cash margins for the oil industry that it would make Alaska the envy of many places.

On Thursday Meyer trimmed the size of the tax cut by billions.  Instead of cutting taxes by from $7.5 billion to $9.5 billion over six years, he proposed cutting taxes by from $4.9 billion to $6.3 billion over six years.

The Wednesday bill had a base rate of 30 percent. The Thursday bill had a base rate of 35 percent in 2014-2016 and a rate of 33 percent starting in 2017.

 

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