Alaska's Economy

Alaska’s oil and gas industry is our economic lifeline. It currently provides 90% of our General Fund budget. However, Alaska’s oil production has declined by 70% from earlier levels—which mean there is now much less oil to tax. In 2007, in order to raise more money, former Governor Sarah Palin and the Alaska legislature passed the “ACES” tax increase which raised production taxes on Alaska’s oil industry by approximately two billion dollars ($2,000,000,000) each year.

In the short-term, the “ACES” tax increase has temporarily increased state income. But, raising taxes can be tricky. The longer-term effect can end up hurting everyone. The “ACES” tax increase, which raised Alaska’s oil production taxes to the highest in North America, tends to discourage companies from investing to increase production in Alaska. As a result, higher oil production taxes lead to less oil being produced, which leads to less oil to tax, which leads to less income for Alaska in the long run.

We can’t “diversify” our way out of this—alternative energy sources are heavily subsidized and do not providerevenue to Alaska. And while Alaska’s other major industries are important and give valuable jobs, they contributerelatively little revenue for Alaska.

We must act now. The current rate of decline in oil production means Alaska will be dead broke, with savings accounts completely empty, by approximately 2025. That’s only 13 years from now, and it could happen much sooner.