Reason #2: Experts Repeatedly Warned Legislators that Cutting Taxes Would Have a Negligible Effect on Production

Legislators were advised on numerous occasions by independent economists that lowering oil taxes would result in minimal increases in production.  “Severance tax rate cuts substantially reduce tax revenue collected, but yield moderate to little change in oil drilling and production activity,” cautioned Professor Mitch Kunce, author of “Effectiveness of Severance Tax Incentives in the U.S. Oil Industry.”  He emphasized that “States should be wary of arguments asserting that large swings in oil field activity can be obtained from changes in severance tax rates.”

 

Dr. Shelby Gerking echoed this warning.  In 2012, he told the Alaska Legislature that “Oil production is quite insensitive to the tax structure” and presented the following slide.  In spite of these clear warnings, the legislature passed the misguided Senate Bill 21.