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Third Base Politics


Give me a moment to weep…

I just learned some new information about my favorite choice for VP. It sucks.

“Over the opposition of oil companies, Republican Gov. Sarah Palin and Alaska’s Legislature last year approved a major increase in taxes on the oil industry — a step that has generated stunning new wealth for the state as oil prices soared. …

BP Alaska, which runs Prudhoe Bay, said earlier this year that it had delayed the development in the western region of the North Slope as a result of the tax. ConocoPhillips cited the same reason for scrapping a $300 million refinery project.

‘What the tax has done is take away all the upside,’ said Doug Suttles, president of BP Alaska. The U.K.-based oil company paid more than $500 million in taxes to Alaska last quarter — far more than it earned in profits from Alaskan oil, according to Suttles.

Investment dollars are flowing instead to places that have a better return, like the massive deep-water projects offshore in the U.S. Gulf of Mexico, where ConocoPhillips said the government take equals less than 50 percent of the barrel.”

Now, I’m happy to wait and see what Palin supporters have to say about how she possibly could support such a tax, but the problem is it stands against the very principles of free market and what it means to be a quality conservative.

I understand that as Governor sometimes one has to compromise one’s position in order to get things done. That may be the case here and I would love to hear from some Palin supporters that can elaborate on her decision making process regarding this issue.

In the meantime, I’m gonna go work on accepting the fact Pawlenty will be the choice.


UPDATE: I was just emailed an explanation of this whole issue. It seems things are a little more complicated than the article above explains. Sadly, at the speed the blogosphere moves it is going to take a lot of work to ease concerns from economic conservatives. Here is the analysis I received:

“The Alaskan tax system basically, because it has a progressive rate, basically says that oil companies can make about the same amount of net profit per barrel of oil whether the price is $80 or $120 per barrel. It’s not exactly the same, but it’s pretty close.

Now, there is an incentive inherent in this to drill more. Drilling more means more supply. More supply means lower oil prices. Lower oil prices means a lower tax rate per barrel. But, and this is the important part, an oil company in theory would make more money (more total profits) through more drilling because they’d be selling more barrels of oil.

As an aside, there’s also an incentive towards greater efficiency. The tax takes effect after something like $25 or $30, which is considered the break even cost for a barrel of oil. If a company can figure out how to be more efficient and how to retrieve that oil for $20 per barrel, for example, then there’s an additional savings.

By contrast, a windfall profits tax addresses those total profits. The idea is to look at how much a company makes in total profits for a quarter and, depending upon conditions, to assess an additional tax.

Now, I still think, as a matter of political perception, that the language to use is that Palin is against oil companies getting per barrel tax incentives that they got at $60 or $80 per barrel. But, if the oil companies drill and prices go down, then those tax incentives or rebates come back into force. The idea is that everyone wins: If oil companies drill more, then prices go down. If they sell more barrels, then their total profit is better. And, if the state still gets its money (lower tax per barrel of oil but more barrels of oil).

Oil companies will say that it provides a disincentive to explore, but the reality is that the federal government won’t allow them to explore where the oil is. If that obstacle were removed, then there most assuredly is an incentive to explore, as oil companies would realize even greater total profits through greater supply.

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Third Base Politics is an Ohio-centric conservative blog that has been featured at Hot Air, National Review, Washington Post, Los Angeles Times, Pittsburgh Tribune-Review, and others.


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