Skip to comments.What Palin Really Did To the Oil Industry
Posted on 08/22/2011 8:17:41 AM PDT by The Bronze Titan
Oil companies in Alaska are paying more money in taxes than ever before. The state's oil and gas tax revenues for its just-ended fiscal 2007 topped $10 billion. That's twice as much as fiscal 2006 and four times more than 2004. Some supporters of Barack Obama see that money coming in and say that John McCain's running mate, Alaska Gov. Sarah Palin, must have done what Sen. Obama wants to do -- sock those companies with a big fat windfall profit tax. This is a deeply misleading reading of her 2007 tax reform.
(Excerpt) Read more at online.wsj.com ...
"ACES represented a major philosophical shift in the role of government. As resource owners, Alaskans literally had a "working interest" in energy exploration and development. Traditionally, the sovereign's role is to passively collect resource royalties, but under this value structure, we would shift towards an active role in incentivizing resource development. Our state and nation needed it. Ours ACES proposal would provide more value to Alaskans when the price of oil was high but would provide substantial relief to the oil companies when prices fell.
In the special legislative session held in October and November 2007, legislators on both sides of the aisle agreed with our approach. The measure passed with overwhelming public support. Of course, I took political hits as the oil companies launched a smear campaign that we were raising taxes on the industry. But we persevered, and I'm glad we did. A year later, vindication came when industry officials admitted that the legislation was working and had even significantly increased their profits while spurring them to invest more in exploration and new development in Alaska. We had struck that sweet spot where industry and the public interest were mutually served."
Your understanding of the payments to Alaskans is flawed. The people own the land NOT the oil companies. The oil companies are paying a usage fee to the citizens not a tax. If you owned a 100 acre farm and another farmer used 50 acres of it, you would expect a portion of his profit. Same concept.
Thanks for your take.
You may have heard that Sarah Palin raised taxes on oil companies in Alaska when she was governor, but what most people don’t know is how economically smart her tax plan was. In a nutshell, here’s how it’s structured: when the oil prices are high, the tax is higher; when oil prices drop, the tax drops. It provides an incentive for the oil companies to keep oil production high, which keeps oil prices and, therefore, gas prices low. It’s very smart. More from Cary Wesberry:
Former state Representatives Pete Kott and Vic Kohring have been convicted taking bribes from oil company executives in Alaska. Using the oil profits tax passed in 2006, these politicians literally used their offices to steal money from the citizens of Alaska. Governor Sarah Palin would have none of it, and set to work to correct the problem and return that money to Alaskan residents...
Governor Palin did what any conservative worth their own soul would have done. She gave tax dollars that were literally stolen from Alaskan taxpayers right back to them and appropriately reversed corrupt tax policy. Not only did she bring ethics back to the tax policy in regards to the oil industry in Alaska, she improved the policy itself in her proposal.
The tax raises when oil prices are high, and falls when oil prices are low. This give amazing incentive for the oil companies to produce more oil, which increases supply, and lowers prices for everyone including the taxes they themselves pay the state. When oil prices are low the tax moves to a 10 percent tax on the gross, instead of the net tax of 25% when prices are high. Instead of, not in addition to. The oil companies in Alaska with the Palin proposal pay the state minus their operating expenses along with pipeline and tanker charges. In this way, the oil companies are not taxed for the cost of doing business.
The feds have further exploration locked up, so the oil will continue to taper off as the present fields go dry. You could stop all taxes and that will not refill the fields.
Drill new fields and you get more oil. No drill and the pipe runs dry. Fact of life
Big difference: Exxon, Conoco Phillips, BP etcetera DO NOT OWN A DROP OF OIL in Alaska.
It is all owned by the people of Alaska,and they can drive whatever bargain they want when they sell it to the oil companies. It’s called free trade.
In the lower 48, the great majority of mineral rights were sold long ago, not so in Alaska, where mineral rights, with few exceptions, were never sold, and are retained (according to the Alaska Constitution) by the citizens of Alaska.
Actually, I write them and enter into them
Nothing like an escalation factor.
We do have floors, just as similar to what is described except
The floor in our case is a fixed dollar amount and if the business makes more than a certain amount is is a percentage of the gross - losses (theft/fire/etc..)
This sounds like a percentage kicker that increases logarithmically, I wouldn’t ever agree to that no matter how good a location it is unless it was tied to improvements that were going to be made that is expected to benefit the business. Example: Adding a parking structure to allow more customers
I get all that, you haven’t told me anything I don’t know, but on top of this 25% there is an addition of an “escalator clause”
What the hell is that?
Everything I am fine with that you described.
Handouts are not pure capitalism bray. Government always makes royalties off public land resource exploitation and offshore...that is not the question.
Does any other state do it?
Why not just reduce state budget tax needs instead of giving out cash.
I find it a serious question for a conservative forum and it is not about Palin..she only gets credit for making them more honest in their accounting..the Permanent Dividend has been in place since 1976
OK, thank you for enlightening me. It seems I need to do a little more research on this subject before I finalize my opinion.
Oh, and BTW, I appreciate the courteous manner of your response; as opposed to insulting me for my difference of opinion. Which happens more than it should here.
I find it hard to believe Free Republic as a rule is in favor of this sort of thing...but you make a decent point ..they have little refining cap there
"The Alaska Permanent Fund is a constitutionally authorized appropriation of oil revenues, established by voters in 1976 to manage a surplus in state petroleum revenues from oil, largely in anticipation of same from the recently constructed Trans-Alaska Pipeline System. The fund was originally proposed by Governor Keith Miller on the eve of the 1969 Prudhoe Bay lease sale, out of fear that the legislature would spend the entire proceeds of the sale (which amounted to $900 million (US)) at once, and was later championed by Governor Jay Hammond and Kenai state representative Hugh Malone. It has served as an attractive political prospect ever since, diverting revenues which would normally be deposited into the general fund."
That said, the state taxes companies, the money taxed and collected by state force is redistributed to Alaskan residents.
Doesn't sound conservative...
We hear this all the time in Pennsylvania because our Governor will not sign an extraction tax on shale gas. The Liberals always shoot back with “Well....your hero Sarah Palin imposed one in Alaska, and you wouldn’t call HER a Socialist, would you?”
... that said, send me a check too!
Taxing shale gas right now would stymie further development over the next year or two because prices are so low - note that a tax akin to Palin's gas tax would not kick in at these prices.
The state's workers need the drilling jobs more than the state goverment needs the taxes - but try telling the lib morons in Harrisburg that.
And even less distribution infrastructure.
Nothing personal but if Chevron spent the money to extract the oil I have no issue with them or their stockholders as billionaires.
It's a quandry...give cash or cut state budget taxation needs...I prefer the latter...I simply think handouts..to people or business are a bad idea generally.
I think Alaska started this for two reasons:
Huge Indian population that had a reasonable interest in the land their ancestors once roamed and folks figured this was a decent distribution to them...they may get additional on reservations like the Navajo and Hopi do And I think it was an incentive to bring in more workers they needed when the boom took off...it's hard to say..it's not an enormous amount of money...less than an unearned income refund
Texas, Oklahoma and Louisiana all have had major oil and gas plays and to my knowledge they never gave out annual cash to folks who lived there for the minimum year with no felonies
I agree with hosepipe though...better to have state control than federal usually...for a myriad of reasons...all of which tilt right..Good Lord for Obama and Bent One grabbed land..whew
At the link it gives those details on how much is paid out to citizens of Alaska. Their oil revenue is so huge and their population relatively small, so they are all getting a nice chunk of the oil wealth, plus I think it finances most state government programs. A deal no other state has that I know of.
If your family owned a piece of land and someone found gold on that land. You then gave that person the right to dig for gold because they had the expertise and equipment. Would you and your family just give that gold to that person or would you, because you owned the land and the gold under it, expect part of the profits from that gold? Would you consider it socialism if each of the family partners who were co owners of that land received a portion of those profits?
This is the only thing that would make me into a rabid Sarah Palin Supporter.
I already love her.
Good grief people. Its not companies that do business there. The oil companies are taking state owned (ie people of Alaska) resources and extracting them for a profit. Would you expect part of the profits of gold that came from you land even though someone else with the equipment and expertise was allowed to dig it up? Its not the same as a company that buys raw materials and makes a product for resale.
Not a correct description. Alaska owns the minerals. In oil and gas, royalties from the production of minerals are collected just like if I collected royalties from my privately owned mineral rights in Texas.
In Alaska, they are owned jointly, no private ownership of minerals, although the Native Groups own their minerals rights (collectively by group) and the Feds own theirs. Governor Palin did not change this.
What she put in places was ACES, a tax on the profit after royalties and other approved expenses are paid. There was a profit tax before Gov. Palin; this is not new. She changed the structure and increased the rate. This tax is not redistributed but only used for state government.
What part of taxes isnt? By your standards, the whole world for all history is socialist! I really do not understand when people get a direct tax cut based on surplus income to the government people freak out. You are fine with it if the people dont get a percentage of the windfall from mineral wealth, you only get freaked out when the people do?
Trust me, there are plenty of government bean counters that would love to do away with that check. Why then we in alaska could count tree toed frogs, if we could find thawed ones that is.
Several points to consider when interjecting "Alaska Oil" and "Sarah Palin"...
- Sarah Palin single-handedly took a confirmed "corrupt" state industry (comprised of capitalist and government forces), and turned it on it's head by reforming it's revenue structure and providing public transparency to be benefit of it's citizens. That cannot be disputed.
- Sarah Palin took this effort in the right direction. The legislation as "ACES". Was it "PERFECT"? No, because nothing in this world is (except the exceptional "Diamond"). But, she she did REVERSE THINGS in the right direction as far as it was politically possible.
- The "ALASKA CONSTITUTION" (unlike those of other states) proclaims the "oil" (i.e. "minerals") to be the property of the State/Citizens. This makes the STATE/CITIZENS the "OWNER" of the oil (Mineral), and so they become the "SELLER" of this oil. As the "Seller" they (STATE) get to decide "WHO" they sell to (Leases) and "HOW MUCH" to charge (call them "Fees", "Taxes", "Charges" less "Credits", "Tax Breaks", etc...), and to what "END" they apply these "REVENUES" (Dividend Checks / Savings applied to future obligations "DEBT", etc...).
- As the "OWNER" of this Oil, the STATE needs to make sure that they get the best return on their ASSET, but at the same time being mindful that you need to have competitive incentives for private industry to INVEST and DEVELOP this resource for the longterm. This is what the current debate is about. See the Report just commissioned this year issued by 'Commonwealth North'.
This could be off, but the way I understand it is.
If oil is say $120 a barrel that means there isn’t a large supply, someone is not producing and the tax rate is high (under ACES). Before ACES that was an incentive to not produce, keep the price of a barrel high keeping profits high.
Now under ACES there is an incentive to produce more, drill in leases that they have been holding and sitting on. The more they drill and produce the more the price of a barrel drops. As the price of a barrel drops the tax rate drops. Everyone makes more money when the taxes drop, that is the whole point in the deal.
The smartness in this is that oil companies make more money the lower the price of oil is instead of the higher it is. The higher the price (of oil) is the more we (the public) get screwed at the pumps.
Meant to also ping you to #75.
I was recently at a shale gas event here in PA that had lots of Democrat politicians hanging around. And I literally have never seen so many dollar signs cha-ching-ching-chinging around in people’s eyes before.
Their environmentalist buddies are useful idiots. Ten seconds after they find a way to bluff Corbett into taxing this gas the enviros are goin’ under the bus.
We know the oil is there and its a vast resource. We know that developing it is not a mom and pop operation, however mom and pop own it. How do we bridge the gap? We need the oil, but is it fair to take the only resource Alaska has from the Alaskans and just give it lock stock and barrel over to a for profit company? This is not about wealth redistribution, for to give up the oil to company and not make that company pay a cost for the oil lease would be to steal all the wealth from mom and pop.
So, for longer than America has been a nation, the system of Royalties came to be. (The name is a clue) It says, hey, I got a gold mine here, you are a gold miner, if you want to lease the land from me and give me a portion of the gold, then we got a deal. The gold miner is happy, because he moves in and builds a mine and makes profits, the owner of the land is happy, because he is getting some of the gold.
In the case of Alaska, the people OWN the mineral rights, not the GOVERNMENT or the OIL COMPANIES. So in the long run, if you do not cut a check to the actual owner there is this little law thing that kicks in about theft of properties without fair compensation. So the PFD has more than one purpose. Fair is decided by the government and means that mom gets a penny, Pop gets a penny, the Governor gets a buck and the oil company gets a buck.
Please do not forget that MOM and POP own the oil. Now you can argue what is fair till the cows come home, but the bottom line is, who owns it and who is getting paid.
This is not a tax for redistribution scheme, this is a royalty payment that is governed by the government. When it is all over, the gas companies make record revenues larger than most third world countries, the government has a multi BILLION dollar budget paid for and Alaskans get 1200 bucks.
Want to be real conservative? Cut the government out of the deal. They are the redistribution part of the tax, not the PFD.
You own a gold mine, the government decides to manage it for you and sells the rights to someone else saying it would be socialist if we gave you money.
They would be right, they would also be Fascist. Somehow I think that is not a step in the right direction.
-”Her plan includes an escalator clause that gives the state a larger share of revenues when oil prices rise. This is common to production-sharing agreements all over the world.”
If that is what she is trying to do, that would be a progressive tax,
The way it is advertised is it is just to make sure that the state gets an equitable share of the profits and not to try to modify the price of oil .... which seems impossible since Alaska is too small to have more than a 1-2% affect on world oil prices.
Seems that the scheme may Incentivize higher prices...not lower....and there really isn’t anyway Alaska is going to lower prices by itself.
That’s a great point - as soon as a tax is in place the Dems will be chanting ‘Drill baby, drill!’
The long and short of it is that Sarah Palin didn’t DO anything TO the oil companies. She UNDID what the oil companies were doing to the people of Alaska via bribes and corruption...which allowed them to sit on leases without developing them, keeping prices high for everyone.
That is a good report. Here is the direct link to the source rather than through some blog with ads.
That report highlights how the Tax enacted under Governor Palin is too high and needs to be reduced. On page 4:
1. Alaskas current oil tax structure under Alaskas Clear and Equitable Share must be made more competitive in order to encourage oil profits to be reinvested in Alaska. The progressivity tax should be reduced and/or capped.
2. Alaska should continue to encourage exploration for new oil reserves through tax credits and incentive programs.
3. The Governor and the Legislature must make oil production a matter of highest priority. The Legislature must pass revisions to ACES this year. If it takes a special session, hold one.
“The people of Alaska OWN the oil in the ground.. NOT THE FEDERAL GOVERNMENT or the oil companies..”
Just to make clear, Alaska is the only state where this is the case - it is in their Constitution. And was a firm point - if they couldn’t hold on to ALL of their natural resources (timber, fish, wildlife, oil, minerals....) they weren’t going to become a state.
However, with so much of Alaska land tied up as Federal land - the fed’s can prevent them from getting to their resources (ANWR).
What leases did she change this way? No production has started from Point Thomson.
Just a note, I don’t pay state taxes here, due to the good management of the Government, they pay me.
Texas has oil, California has oil, compare the differences.
Now you Rabid yet?
This is an excellent point of discussion and debate. So refreshing to see it.
Paying a state resident for oil revenues seems to me an excellent idea, and consistent with capitalism, if you look at oil in terms of who owns it when its in the ground.
It’s not a stretch to look at oil as something different than something like owning forest land or farm land. Oil’s generally down there pretty deep. To say one ‘owns’ an oil well because you happen to own a parcel over a resevoir of it that may cover 1000’s of square miles is something I have an issue with.
It made sense when we were developing oil in the early days of the industry, but we know more now. In fact, its down so deep we know it could NOT have come from rotting dinosaurs and mesozoic plant life, et. al. If the state allowed oil companies to access the resource, and it was something every LEGAL CITIZEN of the state could have a share in, I think the costs to the oil companies would still be less than developing such resources in hostile foreign countries and then shipping it here.
In fact, we currently subsidize the defense of such assets right now protecting such interests in those same ‘partner countries’. If those assets should be destroyed or damaged, the current policy is that the cost of replacement is guaranteed by the taxpayers.
The oil company, through its private development and refinement of extraction technologies and processes is entitled to what they are getting in profit. However, if the oil extracted domestically can’t be looked at as a resource rightfully belonging to the citizens of that state, at least in part, then I don’t know what is?
I know that water is increaingly being looked at in a similar fashion, and it is already well established that one man drilling a water well on one piece of land and over extracting from it adversely effects other landowners in the area.
Palin not only gave the oil companies incentive to MAXIMIZE their extraction in Alaska, she argued that maintaining the average Alaskan as a permanent stakeholder would reduce their companies expenses in the medium and long term AND give the companies a willing laboratory for better future extraction techniques.
If more states went to the Alaska model, you’d have fewer envirowhackos prevailing in those states. Go to any refinery town and start pissing on about how ‘burning dead dinosaurs is so dirty and so yesterday’. You won’t find many sympathetic ears.
Colorado is especially critical in this regard. They not only hold shale and coal resources on par with most oil nations, they also have much of the worlds proven Thorium, and a great deal of the world’s proven Uranium.
None of it is coming out of the ground because the average citizen doesn’t have a stake in it. Were the governor there go to the Alaskan model at this opportune moment in economic history, I think he’d have allies from all stripes - oil companies, mining companies, unions, D’s, R’s - everyone but the greenies, and they are wearing out their welcome everywhere.
You just have to agree that the resources have to be developed by US interests, or foreign companies with US ownership above some acceptible percent. Each state can agree to its own terms.
The other thing that HAS to end, however, is the great US federal land grab. Turn that all back over to the states and let them go to market as they are wont to. The winners and the losers will sort themselves out.
The Alaska Constitution only holds on to the State and Private land mineral rights. The natives hold their mineral rights and the Feds own the Federal Land mineral rights.
No, not satisfied with my knowledge.....not her fault
If she enters the race .. I will find out, I thought someone might already know on FR.
If it is progressive then it still means she is a top choice for me ... meaning she maybe 1 of 2 or 3 to choose between
But if it as so many have told me to be a straight percentage then not only will I vote for her, I will march in the streets for her.
I think Palin can ride this energy theme into the White House as an EXPERT, which is something the rest of the field cannot.
I don’t think Texans get checks when oil companies drill there.
If every state could go to the Alaskan model, it could turn the whole country around.
You gotta get a drill to the oil before production. The Liberty project is the biggest side drill in America. It may not be producing oil yet but hey, in the long run It may produce more than any other field.
It really is not fair to say its not in production when they started building the drill rig a year ago.
[ Their oil revenue is so huge and their population relatively small, so they are all getting a nice chunk of the oil wealth, plus I think it finances most state government programs. A deal no other state has that I know of. ]
YOU have a problem with that?...
WHat re-distribution program would satisfy you?..
The LAST THING the federal government needs is MORE MONEY...
Giving a heroin addict more heroin is also WRONG..
“...and the Feds own the Federal Land mineral rights.”
Oh - thanks! One of these days we will have to storm the gates to develop our natural resources. Have the feds open up their land to development and reap the rewards to bring down our debt.
Could you provide a source for your quote please?
This is from the article
“ Some say Mrs. Palin’s ACES is like that, because this year every Alaskan will receive a $1,200 check as a share of the oil bonanza. (The check comes in addition to the approximately $2,000 every Alaskan will receive this year as a dividend from the Permanent Fund, which was established by state constitutional amendment in 1976 as a way of sharing the state’s mineral wealth with the people.)
A direct share in oil profits for every citizen is the ultimate incentive for more drilling.”
There are two types of payments. The Oil Companies do not own the land they are drilling on. They must pay a fee for it’s use and the fee goes directly to the people of Alaska instead of into the state coffers. That sounds like an awesome plan to me.
That is only the base rate at or below $30 per barrel. At $92.5/bbl it is 50%. From there it rises another 0.1% for every $1 increase.
Page 6,p> Keep in mind this is after the royalties are first paid. The companies also pay property taxes if the property is used for oil/gas. No other industry in Alaska has to pay state property taxes.
Then the Feds add their corporate taxes.
I forgot the Alaskan Corporate tax as well.
When you find out could you tell me please. I *thought* I was smart enough to have almost figured it out but I’m not so sure. I like things simple, and this is definitely not a simple subject.
Individual Texans get a check from the minerals rights they lease. Mineral rights are individual owned and can be sold separate from the surface land in Texas and many other states.
If every state could go to the Alaskan model, it could turn the whole country around.
If you want to take individual owned mineral rights from the individual owners, Texas or elsewhere, you better come prepared for a fight.
[ The long and short of it is that Sarah Palin didnt DO anything TO the oil companies. She UNDID what the oil companies were doing to the people of Alaska via bribes and corruption...which allowed them to sit on leases without developing them, keeping prices high for everyone. ]
True.. thats the short and sweet of it... well said..