It's time to get our economy producing!
It's time to get our economy producing! This was the message at the CER Chamber of Commerce meeting today. "Make Alaska Competitive" Coalition was the main speaker and the forum was sponsored by BP.
The message was that Alaska had increased taxes by so much in 2007 that Alaska was no longer a place to develop. Based on the information they provided it appears that they're correct. One excerpt from their handout reads as follows:
- We a NOT competitive compared to other areas
- When oil prices are $100 a barrel, the total marginal government take in Alaska is 82 percent. In Alberta, it's 55 percent. In the Gulf of Mexico it's 43 percent. Alaska is simply not competitive under ACES. (source: Roger Marks)
I have a really hard time with these numbers, but no one gives all the information, so I have included a copy of the tax rate:
The formula for the total tax rate, including the base rate and progressivity is:
0.25 + ((Net per barrel value - $30) X .004)
ACES also contains a 20% tax credit for capital costs, with potential greater credits for exploration depending on location. For example, let's assume the following:
- 100 barrels sold on the US West Coast
- ANS West Coast price of $50
- Transportation cost (pipeline and marine shipping) of $5
- Upstream (exploration, development, production) costs of $20: $10 capital and $10 operating
- No royalties (for simplification)
The net value of the oil would be:
100 X ($50 — $5 — $20) = $2,500
The per barrel net value would be:
$2,500 / 100 = $25/bbl
Since this is less than $30/bbl there is no progressivity and only the base tax rate would apply. Thus the tax before credits would be:
.25 X $2,500 = $625
The capital credits would be:
.20 X $10 = $200
The tax net of credits would be:
$625 - $200 = $425
Now let's say the price of oil goes up to $70.
The net value of the oil would be:
100 X ($70 — $5 — $20) = $4,500
The per barrel net value would be:
$4,500 / 100 = $45/bbl
Since this is more than $30/bbl there would be a progressivity surcharge. The surcharge would be:
($45 — $30) X .004 = .06
Thus 6% would be added to the base tax rate of 25% for a total tax rate of 31%. Thus the tax .31 X $4,500 = $1,395
The capital credits would be:
.20 X $10 = $200The tax net of credits would be:
$1,395 - $200 = $1,195
Now if you can understand all this I am very proud of you. What I do understand is that as the price of a barrel of oil goes up, so does the tax rate. Only it is not prorated like our income taxes. Alaska gave the oil companies a great rate and even a free pass for many years and oil production has dwindled. Now prices are finely high enough that they can really make money.
Alaska needs a fair share of this wealth, but what is fair. Talk to your politicians about what you think is fair. I am no going to say how to fix this, but I do think it is broken. Don't misunderstand me though. I think that Alaska should get more then we did before, but maybe not all of it.
