Palin backed Alaskan windfall-profits tax

posted at 8:50 am on August 11, 2008 by Ed Morrissey

John McCain and nearly every economist agrees that a windfall-profits tax on the oil industry would drive away investment, increase prices to consumers, and make Americans more dependent on foreign oil. If anyone wants to see that in microcosm, they only need look at Alaska. With the backing of Governor Sarah Palin, the state managed to drive away investment in development by hiking taxes on oil companies drilling on state lands:

Over the opposition of oil companies, Republican Gov. Sarah Palin and Alaska’s Legislature last year approved a major increase in taxes on the oil industry — a step that has generated stunning new wealth for the state as oil prices soared. …

BP Alaska, which runs Prudhoe Bay, said earlier this year that it had delayed the development in the western region of the North Slope as a result of the tax. ConocoPhillips cited the same reason for scrapping a $300 million refinery project.

“What the tax has done is take away all the upside,” said Doug Suttles, president of BP Alaska. The U.K.-based oil company paid more than $500 million in taxes to Alaska last quarter — far more than it earned in profits from Alaskan oil, according to Suttles.

Investment dollars are flowing instead to places that have a better return, like the massive deep-water projects offshore in the U.S. Gulf of Mexico, where ConocoPhillips said the government take equals less than 50 percent of the barrel.

In fact, Palin’s plan looks similar in concept to Barack Obama’s plan. The state gave Alaskans $1200 checks from oil revenues as a one-time bonus to pay for increased fuel prices, a move Palin pushed. That echoes the Obama plan to send one-time rebates to taxpayers, funded by similar levies on oil companies.

However, the results in Alaska should warn the rest of the country about pursuing this policy.  Already oil companies have stopped drilling on state lands, thanks to the tax burden Alaska imposes.  It should be cheaper to drill and extract from these areas, but the oil companies have decided to focus their investment instead on the Gulf, where the costs and risks would normally be higher.  In Alaska, the government takes 75% of the price on a barrel of oil at current prices, which gives them no incentive to work there.

If this plan gets pushed across the country in an Obama administration, then we can expect similar disincentives to curtail domestic production all across the nation.  Oil companies will explore other parts of the world, but American oil companies will not have the access they enjoy here.  Our own companies will be weakened in international competition, and we will have to both buy more oil from abroad, and more from state-owned companies, while American investors lose significant ground.

Palin has been a strong voice for opening ANWR to reasonable and planned development.  Perhaps she needs to rethink her approach to overtaxing oil companies for their work on state lands while encouraging the use of federal lands, too.


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