{"id":2182,"date":"2012-03-30T16:26:02","date_gmt":"2012-03-31T00:26:02","guid":{"rendered":"http:\/\/bertstedman.com\/new\/?p=2182"},"modified":"2012-04-07T22:20:46","modified_gmt":"2012-04-08T06:20:46","slug":"senate-finance-discuses-new-progressivity-option","status":"publish","type":"post","link":"http:\/\/bertstedman.com\/new\/?p=2182","title":{"rendered":"Senate Finance Discusses New Progressivity Option"},"content":{"rendered":"

As part of the ongoing hearings on Senate Bill (SB)\u00a0192<\/a>, the Senate\u2019s oil tax bill, this week the Senate Finance Committee spent considerable time discussing a proposed alternative to the state\u2019s current progressivity tax on oil production.\u00a0 Progressivity, which increases the amount of tax owed by an oil company as the price and profit from a barrel of oil increases, is generally agreed to be the part of the state\u2019s oil tax regime most in need of adjusting.<\/p>\n

Progressivity as written is calculated based on the net profit on a barrel of oil, meaning the market price of a barrel of oil minus all costs associated with producing and transporting that barrel to market.\u00a0 The alternative progressivity option being discussed would be calculated on a gross production value, meaning it would be based solely on the market price of a barrel of oil less royalties.<\/p>\n

Basing progressivity on gross value rather than net profit value allows for two key advantages: a simpler framework to incentivize new oil production and a de facto \u201cdecoupling\u201d of oil and gas taxes.<\/p>\n

Incentivizing new oil production above and beyond current levels will require an \u201call-in\u201d approach where different types of oil fields \u2013 the existing giant \u201cLegacy\u201d fields as well as new oil fields currently being explored and developed \u2013 and eventually different types of oil resources, like heavy oil and shale oil, will need to be selectively incentivized by tailoring tax rates specifically to each type of production.<\/p>\n

The Governor\u2019s proposed House Bill\u00a0110 incentivizes new oil production by lowering the progressivity rate for oil produced from new fields.\u00a0 Under the current net profit-based progressivity tax, this would lead to what\u2019s known in tax terms as \u201cring-fencing,\u201d where old and new oil fields, because of their distinct tax rates, would require separate tracking of production costs and the filing of separate tax returns.\u00a0 This would create an additional administrative burden for both the oil producers and the state tax accountants and add considerable complexity to an already complex system.<\/p>\n

Replacing the current net profit-based progressivity with a gross-based progressivity eliminates the problem of \u201cring-fencing\u201d and allows for the targeting of different tax rates for different types of new oil production.<\/p>\n

A gross-based progressivity also addresses a problem created by the state\u2019s current combined oil and gas tax.\u00a0 If and when a gasline is built and material quantities of Alaska\u2019s natural gas are brought to market, because of the way the production tax is currently written and the complex interplay of high-value oil with low-value gas, the state could end up losing close to two billion dollars<\/a>.\u00a0 Making progressivity gross-based rather than net profit-based simply and elegantly addresses this unwanted \u201cdilution\u201d effect and ensures that the state gets fair value for its natural gas.<\/p>\n

I look forward to further discussion and analysis of this new progressivity model and other key provisions of the oil tax bill as the Senate Finance Committee continues its discussion of SB 192 next week.<\/p>\n","protected":false},"excerpt":{"rendered":"

As part of the ongoing hearings on Senate Bill (SB)\u00a0192, the Senate\u2019s oil tax bill, this week the Senate Finance Committee spent considerable time discussing a proposed alternative to the state\u2019s current progressivity tax on oil production.\u00a0 Progressivity, which increases the amount of tax owed by an oil company as the price and profit from […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"ngg_post_thumbnail":0,"footnotes":""},"categories":[1],"tags":[111,127,109],"class_list":["post-2182","post","type-post","status-publish","format-standard","hentry","category-news","tag-oil-and-gas-taxes","tag-progressivity","tag-sb-192"],"_links":{"self":[{"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=\/wp\/v2\/posts\/2182","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2182"}],"version-history":[{"count":10,"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=\/wp\/v2\/posts\/2182\/revisions"}],"predecessor-version":[{"id":2201,"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=\/wp\/v2\/posts\/2182\/revisions\/2201"}],"wp:attachment":[{"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2182"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2182"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2182"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}