Saturday, July 8, 2017

To my many friends in the oil industry, I am increasingly repelled ...

Former Senator from Louisiana and long-time US Senate Finance Committee Chair Russell B. Long had a saying to summarize the positions often taken by lobbyists on tax policy: "Don't tax you, don't tax me, tax that fellow behind the tree."

I am reminded of that saying often when reading or listening to something from one of Alaska's Top 20% (of income) about Alaska's current fiscal situation. Their plea (especially when writing or speaking in one of their media or trade association echo chambers) tends to be, "Don't tax you (the oil industry, the source of much of the Top 20%'s income), don't tax me (with an income tax), tax the other 80% of Alaskans behind the tree with PFD cuts."

That saying came to mind again when reading rumored R gubernatorial candidate Scott Hawkins' latest piece in Top 20% mouthpiece Must Read Alaska. "Worst negotiators in modern Alaska history?," https://goo.gl/rwQSxx. It is largely yet another screed about why we need to save "the state" (but in reality, mostly the Top 20% whose businesses, like Hawkins, are tied to the oil industry) from the evils of changes in oil taxes (some of which were recommended a couple of years ago by an R led task force).

Imagine the even greater outrage Hawkins and others in the Top 20% would be voicing if someone was actually proposing to increase government take on the oil industry or, perish the thought, their income, by 30%, 16%, 9% or heck, even 5%. We already have heard the screams of outrage at the House's proposal to convert to government, on average for a family of four, 4.5% of the Top 20%'s income through a combination income tax/PFD cut.

Yet, that is exactly what the Top 20% proposes to do to middle and lower income Alaskans. As we have discussed previously (and is reflected in the attached chart), again for an average family of four, the Top 20%'s preferred Senate alternative proposes to take over 30% -- nearly a third!! -- of the income of the lowest 20% of Alaskans, nearly 16% from the next tier (lower middle), nearly 9% from the next tier (middle income), over 5% from the next tier (upper middle), but only 1.9% -- not even 1/15th of what they propose to take from the lowest 20% -- from themselves.

Personally, I am increasingly repelled by such seemingly non-stop, self-righteous pleas by some in the Top 20% on behalf of themselves and the oil industry. I remain firmly convinced we need to approach changes to oil taxes with extreme caution in order not to undermine the gains made in investment and production levels through SB 21. But I have to admit I increasingly understand the motivations of those pushing for larger changes when reading articles from Hawkins and others in the Top 20% defending the current structure while at the same time supporting massive increases in government take (through PFD cuts) from lowest, lower middle, middle and even upper middle income Alaska families.

To my many friends in the oil industry I would say that those who are defending the industry in that way aren't doing the industry any favors.

Instead, at least in my mind, they increasingly are tying the industry in many minds with the worst of the elitist, self-serving, Scrooge-like and anti-economic -- remember, cutting the PFD has the "largest adverse effect" of all of the so-called "new revenue" options on the overall Alaska economy -- rhetoric coming these days from the Top 20%.

That seems the surest way to lose the looming oil tax battle, not win it.

As we have said repeatedly on these pages, we don't believe any of these "tax and spend" programs are necessary. Instead, we believe using the Hammond 50/50 approach Alaska is well positioned to ride out the current low in the oil price cycle without self-inflicting any further damage on its economy. See "The Special Session version of “Implementing Governor Hammond’s 50/50 Plan," https://goo.gl/nE15Eo.

But, as we also have said repeatedly if we nevertheless are headed down this road it should be done with the least damage and disproportionate effects possible. We believe that replacing both the Senate and House proposals (both the PFD cut and income tax components) with a single flat tax -- a tax that imposes an equal distributional burden regardless of income class -- does exactly that.

We also believe going down that road best serves the interests of those -- like us -- focused on maintaining and expanding productive oil investment in the state. In our view, the road outlined by Hawkins and others -- which preserves their and the industry's position but at the increasing expense of average Alaskans -- ultimately leads to a whiplash in oil policy and a return to the policies of 2007-13. -- Brad Keithley, Managing Director, Alaskans for Sustainable Budgets