By DAVID BLACKMON | DAILY CALLER NEWS FOUNDATION
What would happen to Texas if it’s the Biden administration’s ongoing efforts to restrict its oil and gas industry were to succeed?
What would happen to the Texas budget and economy if, say, the proposed endangered species listing of the Dunes Sagebrush Lizard or Environmental Protection Agency’s threat to hold the entire Permian Basin in violation of ozone standards had the impact of cutting production of oil and gas in half?
What has been happening in Alaska in recent years could provide a real-world example. Biden’s anti-energy policies have played a big role in leaving that state with a big budget hole, and some proposals to address the problem could place the state on a path to a California-like high-tax, slow-growth economy. (RELATED: DAVID BLACKMON: Here’s What Our Climate Overlords Fail To Understand About Fossil Fuels)
Alaska has been viewed over the years as a wealthy state sporting big state budget surpluses. The tax, leasing and royalty revenues coming from oil and gas have annually exceeded the true needs of state government, enabling it to pay an annual dividend to residents from the surplus. The bonus for 2022 came to $3,284 per person, in fact.
But here’s the thing: the energy and mining sectors not only pay for the dividend, their taxes account for two-thirds of the state’s revenues. That easy money has led to easy budget decisions, and per capita state and local spending is the highest in the nation at more than $17,000. That is twice as much as the state of Florida, whose economy is booming.
Rather than cut spending, some in the legislature want to tax more — much more. Proposals include an income tax, something Alaska has never had, ranking as one of just nine states without one. Also, a new state sales tax, a 40% increase in the fees charged to oil and gas producers and other potential “revenue raisers” are on the table. Another proposal would tax small oil producers at the same rate as major producers, dealing a blow to the independent energy sector.
The proposal to effectively increase state oil taxes by $3 per barrel would raise $2.5 billion over 10 years, according to some estimates. But the analysis specifically did not include changes to behavior of oil companies in response to the tax hike. And that is not prudent. Such a major tax increase would certainly result in lower drilling and development activity in the state.
From 2007 to 2013, Alaska used an oil tax system that produced effective rates of more than 90%. All over the world, oil production boomed during this time of high commodity prices, but production in Alaska fell by 300,000 barrels per day in one 6-month period and was projected to drop another 200,000 before the system was scrapped.
Under the new system, production has not declined. Instead of losing money as it was under the previous system, the state made $1.8 billion.
Fortunately, Gov. Mike Dunleavy, a Republican who won by 26 points in 2022, is unlikely to go on the taxing spree being considered by the legislature. He has a reputation as a fiscal conservative and has promised residents he would not raise taxes without a referendum.
As New York and California have proven, states cannot tax their way to prosperity. This is especially true in the energy sector. What Alaska needs is to get on with extracting its resources and to put its budget right by putting its people to work.
The Bottom Line
We saw a similar dynamic at play in Texas’s legislative session this year, as the booming oil and gas industry gifted state officials with a record budget surplus of $33 billion to start the session. The danger for Texas and other booming oil states is what happens when the boom ends. When that happens, state officials will be faced with the same hard decisions on taxing and spending Alaska officials are dealing with today.
The regulations and red tape from the Biden administration are by design serving to make the situation for Alaska even more difficult to resolve. They are putting Alaskans out of work and making them more dependent on state government while simultaneously reducing state revenues.
Let’s hope Alaska can devise an effective way out of this mess, because it is a mess that is likely coming to other oil and gas states as the Biden policies continue to take hold.
David Blackmon is an energy writer and consultant based in Texas. He spent 40 years in the oil and gas business, where he specialized in public policy and communications.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
1-we did have a sales tax once upon a time.
2-the PFD has been pillaged for years. Only reason it was this high this time was the legislature was buying our votes.
3-the reason we’re flush with case (temporarily) is because the legislature has been padding the Perm Fund at the expense of their legal obligations is to secure the ongoing growth of the swamp.
4-Dunleavy’s rep is wildly overblown. Especially on fiscal conservatism.
He’s not wrong on most of his points, but it would help if he did better research. Too many people come in and out of here for his column to be so sloppy.
We had income tax, not sales tax. Some municipalities still have sales taxes, but state income tax ended with the pipeline.
Correct
Masked Avenger, The State ended their Income Tax in 1980. Prior to 1980 the State Income tax had a top rate of something like 7 to 9%.
I know because I paid gobs of $ to the State back in the day.
Prior to Reagan/ Bradley the Feds were no chumps with their top rate either. It was not uncommon for a working stiff to get less than half of his earnings on his weekly paycheck back in the ’70s. This was when your Social Security contribution was less than half of what it is today.
Also Alaska never had a State Sales Tax, that Tax has been historically reserved for municipalities.
Hope this helps you, contact me about Alaskan history before to pontificate next.
Your Welcome!
While I agree with author on most points . I do know that BlackRock ,WellsFargo , Vangaurd and Carlyle group won’t finance oil and gas on North Slope projects . While we invest our permanent fund with these huge investment funds that freely invest in oil and gas all over the world except for Alaska . Someone please answer that question?
At least 500,000 barrels of known daily production left in the ground on the slope in 2023. Very simple to produce with capital . TAPS is literally running at 20% capacity . Badami pipeline operates at a trickle of capacity . Lots of recoverable oil on eastern side of the slope . Yet no roads built . State should be building a road out to PtThomson if only to clean up a potential oil spill . By the way TAPS has nearly 800 miles of road on right away alone and another 500 miles of access roads from highway to pipeline from Pump one to Valdez terminal !
Alaska oil production has been stabilized by fracking, not tax policy. Alaska ranks 50th(last) among all of the States in GDP growth at 0.5%. Poor tax policy and lack of investment results in a resource extraction economy similar to a third world country
We’ve been fracking on the Slope for at least 25 years. Something else is going on. Cheers –
Frank, you are so very wrong, and dishonest, here that it leaves me feeling soiled merely having to point out that fact.
Well! Most Alaskans don’t seem to bothered by the state not producing while federal money still flows in for government, nonprofits, education, medical, basic transportation needs, and public assistance. As I said to my coworkers cause we short staffed people here don’t want to work when the federal government can still provide for their basic needs; but also what a more sad state Alaska be in if America collapsed when our people are like babies. When There goes all the borrowed federal money, There goes people’s public or tribal assistance and make the crisis worse they’d have no work experience and mushy brain not to know any better than to panic and riot in the streets if America collapses. At least Texas included in its constitution it reserves the right to leave the union, where we have national parks most Texas land is in private ownership that one visitor on the train last year told me in Texas if the open land we are riding through was in Texas it’ll all be private, and it has more independent residents than we do. It don’t pay to be dependent, do please please do read to your children the younger the best for them, and if you are Christian also read the children’s Bible stories to them, and guide your teens 15 and older to work or do what I am doing helping my 9 year sell earrings she makes because she wants a job and too young for an employer to hire.
I was informed by several customers yesterday that a number large tourist businesses in “Glitter Gulch”, just north of the entrance to Denali Park, are actually refusing to take cash from customers! And when one of them asked a couple of the managers of those businesses why they were refusing to accept US currency for purchases, they were told that it was because too many of the employees do not know how to give change for cash purchases.
If this does not exemplify both the growing loss of freedom, and the acceleration of our society into a literal “Idiocracy”, I do not know what would.
If Alaska was producing ammo Biden needs for Ukraine, maybe he’d be nicer to us.
Nice one…
The state needs to defy the feds and go after OUR resources and cut the state budget in half.
They will find a way to spend it. More money equals more spending. How about telling me again that I live in a tax free state. When I pay 13,000 bucks in property taxes and no PFD to offset it.
Property taxes translate to the government actually owns your property and allows you to live/work there as long as you pay your taxes. Don’t pay the taxes and poof, it’s confiscated. I’d prefer a consumption tax to replace sales tax, where at least we have some control over the amount we pay based on spending.
More to the point, David, what would happen to -America- if the Biden administration declared a “climate emergency” and the President was granted emergency powers to restrict the petroleum industry –and its customers– as he deems necessary.
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Remember the Constitution-defying abuses federal, state, and city governments committed under pretense of COVID emergency? Care to imagine what the regime might be planning for the petroleum industry and its customers?
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Regardless of the demonstrably evil intent underlying it, the presidential emergency-declaration process succeeded brilliantly for Covid. It nearly crippled the country into total submission, helped reduce surplus population, and crucially, re-educated survivors on who really owns and America and what they can do, Constitution be damned.
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Instead of dwelling on differences between Alaska and Texas, may we suggest Texas and Alaska governors collaborate: figure out the who, what, and how of stopping the Biden regime from doing same bloody thing all over again, this time to America’s petroleum industry –and its customers.
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Okay, let’s dwell on differences, what’s Texas got that tops Alaska’s easily corruptible ranked-choice election racket?
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Maybe Texas should look north to Alaska to see what happened to oil production (and everything else) after Alaska’s election system was thrown wide open to corrupt influences, resulting in two-thirds of her congressional delgation turning Democrat, if not in form, then certainly in function.
If Texas decides to secede we might want to support them or join them .. The Petro-Confederacy!north and south together
As long as the Feds can block mining, petroleum and gas production like they have with Pebble and are now attempting to do with the Donlon Gold mine Alaska will be ailing. The feds never concluded the land swap deal with the State of Alaska using one excuse after another. I won’t go into the number of roads the feds have blocked, but most of the readers here know of them already. All of this has been done in the name of Holy Climate Change. It is so bad the the State is suing the EPA over Pebble. As long as Biden and his ilk are in charge of DC, Alaska has about as much chance as a snowball in hell. And Biden is already making war on petroleum and natural gas, by new regs on water heaters, gas ranges, and pushing electric cars. With this much junk coming down, it is no wonder Alaskans have problems. The cut in petroleum production alone has meant double gas prices, spiraling food prices, and more people unable to meet their bills. The state officials can only do so much. The cancer is in DC.
Alaska has been under attack since day 1 of the Biden regime. We have no help from our elected officials. Peltola is owned, Murkowski gets all kinds of Federal monies and pays people not to work. Sullivan stays very quiet. The future looks grim, if there is any production the Chinese will have their hands in it and we won’t see a thing.
In a nutshell, this article highlights the real issue at the bottom of it all.
Direct Federal control over more than SIXTY PERCENT of Alaska.
So to any Texans reading, Alaska is more than twice the size of Texas, yet more than half of it is Federal.
So imagine, all of Texas and all of Oklahoma under direct Federal purview.
Rescources, to include rare earth ores, that will be forever off-limits as long as folks in DC want to “National Park-ize” all of Alaska.
The premise of this article is a little sketchy. Didn’t Biden’s administration green light Conoco-Phillips production on Alaska’s North Slope recently. And wasn’t it Donald Trump who said no to the Pebble prospect once upon a time?
Mr. Blackmon, the Alaska permanent fund dividend is paid annually out of a trust that was set up about forty years ago. This dividend is paid out of the revenue generated by the corpus of the trust. Current revenue from Alaska’s oil and gas industry does not pay Alaska residents a dividend. Mining does not contribute to the trust or to the annual dividend.
The Feds aren’t against producing wealth, it’s just not being distributed properly.
Into their pockets,of course
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