Somedays, you just need to have a sense of humor. Senator Hollis French Wednesday issued a press release with the following headline: “Alaska Ranks Second in Nation for Friendly Business Tax Climate: New report puts Alaska ahead of 48 other states in overall taxes surrounding businesses.” Seriously, the release says “overall taxes.”
The humorous thing, of course, is the report doesn’t analyze “overall taxes” at all, at least as they exist in Alaska. Even according to Sen. French’s own release, here is what the report analyzes: “[T]he report takes into account five major areas including corporate income taxes, individual income taxes, sales taxes, property taxes and unemployment insurance taxes.”
Oil and gas production taxes — by far the largest source of Alaska’s tax revenue, on by far Alaska’s largest business sector — are not included. Adjusting for those — a step which Senator French skipped — results in Alaska returning to the rank reported earlier this year by business television network CNBC — 50th out of 50. See “America’s Top States for Business 2010 — Alaska,” CNBC (July 2010).
The reason that Alaska ranks so high before accounting for oil and gas production taxes is simple. Because of the amount of taxes paid by that single sector, the State has been able to impose a much lighter — or non-existent — tax burden on the remainder of the economy. From an economist’s perspective, oil and gas taxes have been used to subsidize the remainder of the economy. Only once the additional burden created by the oil production taxes are included does the actual overall position of the State becomes clear.
Certainly, the current oil tax debate is intense. Even creating room for political spin, however, it seems unhelpful burdening the debate further by interjecting misleading information along the way.