Tomas J. Philipson: Alaska’s Senate is about to learn a lesson private capital has tried to teach before

By TOMAS J. PHILIPSON

June 29, 2026 – There is a reliable pattern in how taxes kills private investment. It rarely involves one dramatic decision. More often it involves legislators who believe they can extract more tax revenues from a project without changing whether the project happens. Put simply, if you tax something you get less of it. Alaska’s Senate just ran directly into this problem with its property taxes that could kill an important pipeline project.

House Bill 381 was a narrow piece of legislation designed to make the Alaska LNG pipeline financeable. The existing property tax structure would have required Glenfarne to pay substantial taxes during construction, before earning a dollar of revenue. The total cost runs between $44.5 billion and $54.5 billion. Projects at that scale get financed when and only when projected returns, adjusted for risk, clear the minimum threshold returns lenders and equity investors require. When the returns are too low due to taxes, the capital does not show up. It boils down to simple arithmetic.

Alaska’s own Department of Revenue has noted that the pipeline project’s economics are close to not being sustainable before accounting for any new taxes. Glenfarne, which owns 75 percent of the project, told the Legislature after the Senate vote that the amendments would produce an unworkable, unfinanceable and uncompetitive project. Those words reflect standard financial models that determine whether a deal proceeds or dies. When a developer who has committed years and significant capital to a project says the new terms kill it, they know what they are talking about.

Large infrastructure investments flow toward jurisdictions with stable, predictable tax environments. When a legislature rewrites the terms of a $50 billion deal late in the negotiation, it signals to every future investor that the rules can change and investors shy away when uncertainty rises.

The bill also has more fundamental problems. Alaska’s state income tax code apportions liability based on federal taxable income. Pass-through entities do not have federal taxable income. Income flows to individual shareholders, not to the entity. The bill imposes a tax on a baseline that does not exist for these structures. That is a foundational defect in the bill. The legislation also appears to disallow standard deductions, including intangible drilling costs, depletion, and previously incurred capital expenditures. The nominal 5 to 9.4 percent rate understates the actual burden.

The bill contains an outright contradiction in its own definitions. It lists sole proprietorships as qualified entities subject to the tax while simultaneously stating that a qualified entity does not include a natural person. A sole proprietorship has no legal existence separate from its owner. They are, by definition, the same thing. The bill attempts to tax a business entity while excluding the only legal person who could constitute that entity.

The Senate set a January 1, 2028 effective date, apparently believing the delay resolves the uncertainty problem. It does not. The Department of Revenue does not yet have the regulations needed to administer this tax, and developing them will take years. Investors shy away from future regulatory uncertainty just as they do from present uncertainty. A tax that remains unresolvable in 2028 is unresolvable today for purposes of modeling returnsthat depend on future taxes. The delay changes the effective date but not the uncertainty of the financing calculus.

The provision reaches further than its authors admitted. The Legislature asked Alaska’s Department of Revenue whether this tax could apply to a Houston bakery owned by an entity that also operates in oil and gas. The Department confirmed in writing that a bakery could potentially be combined with an oil and gas producer if the relevant factors are present. Remarkably, the Legislature held more than 60 hearings on the Alaska LNG project. It held zero on this provision and its effects.

The people who ultimately pay the price for this kind of error are not Glenfarne’s investorsand the workers and consumers their business helps. They are Alaskans who heat their homes with Coo.k Inlet gas that is already declining in supply and rising rapidly in cost.

Glenfarne has projected that a completed pipeline could cut the cost of gas in Southcentral Alaska by half. That projection requires terms the developer can take to its lenders and investors. The income tax provisions need to come out. There is no version of this where they remain and the pipeline gets built.

Tomas Philipson is a former acting chairman of the Council of Economic Advisers under President Trump and the Daniel Levin chair in public policy at the University of Chicago.

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