Lawmakers Try Making Life Worse For Americans As Gas Prices Wallop Pocketbooks

As Americans grapple with painful prices at the pump amidst a global oil crisis, some Alaskan lawmakers seem intent on making that pain even worse. The 49th state is debating a tax increase on certain oil and gas companies, a measure that will make energy even more expensive and chill investment.

The state Senate shoehorned this tax hike via a Democrat-sponsored amendment into a House bill that covers a royalty agreement with Marathon Petroleum Corporation. The amendment would impose a top marginal tax rate of more than 9% on privately held oil companies, as opposed to publicly traded ones like ExxonMobil or Marathon.

It’s a messy change to Alaska’s tax system that would impose significant costs on privately held energy producers, called S corps, which have strict limits on the number of owners or shareholders. They’re often much smaller than their publicly traded brothers, the C corps. The tax hike would impose the higher taxes of C corps onto certain S corps in Alaska.

Of course, the state Senate didn’t bother vetting the knock-on effects of such a change and no one provided any empirical modeling of the economic impact. Members of Alaska’s legislature aren’t even sure which companies in the state would be impacted — further evidence that this change hasn’t been adequately contemplated.

Rewriting Alaska’s corporate tax code would create tremendous uncertainty in the oil sector, which already faces significant structural challenges, including declining production from mature fields, limited lease availability, and the high costs associated with exploration and development.

After years of stagnation and decline, oil production is finally projected to increase, with the U.S. Energy Information Administration forecasting growth in 2026. But that forecast is not a foregone conclusion.

Oil and gas investment is highly sensitive to policy changes, particularly for S corps that are very responsive to tax treatment when financing capital-intensive projects like oil development.

Imposing new taxes on these entities risks undermining the very investment needed to sustain and grow Alaska’s energy output and their economy. The solution to a so-called revenue shortfall is not to hike taxes, but to encourage investment.

This change would do exactly the opposite. It not only makes investment in Alaska’s oil sector less profitable, but it makes it riskier. By rewriting part of the corporate tax code to target specific companies, it’ll make other businesses and industries worry if they’ll be next to face a tax hike.

The fact is that incentives matter. If you tax something more, you get less of it. Higher taxes on energy producers organized as S corps would reduce economic activity in the sector, meaning less energy production and less domestic investment. That’s exactly the opposite of what the nation needs right now and will only exacerbate high prices at the pump.

Alaska should be encouraging exploration and production, while fast-tracking new projects. A larger energy sector is the best way to increase tax revenue, as opposed to strangling less economic activity with higher taxes.

The irony here is that the Alaska legislature previously rejected this proposal — just last year.

Fortunately, the House also just rejected the Senate’s offending amendment, but there’s still a chance the tax hike gets shoehorned back into legislation and ends up on the governor’s desk.

Everyone, from the Alaska legislature and governor to the American people broadly, should understand the effects we can expect from this kind of tax increase. Investment and production will fall, putting further upward pressure on energy prices. Employment in the oil and gas industry will suffer and economic growth in Alaska will be hamstrung.

All this negative fallout would be bad enough during normal times with relatively low oil prices, but it’s substantially worse with today’s elevated prices stemming from the Iran war.

Alaskan lawmakers would do well to remember the fragility of both the global energy sector abroad and the American consumer here at home before upending the tax code.

E.J. Antoni, Ph.D., is a senior fellow at Unleash Prosperity and chief economist at the Heritage Foundation where Sarah Wagoner is a policy analyst for environmental and energy policy. Originally published by Daily Signal.

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.