Sarah Palin and Taxes

| Sat Aug. 30, 2008 3:19 PM EDT

SARAH PALIN AND TAXES....Let's talk policy! And to make it even more interesting, let's talk tax policy!

So here's an interesting thing about Alaska governor Sarah Palin: she's a tax raiser. Last September she proposed a new state tax plan called ACES, and by November she had successfully pushed it through the Alaska legislature in a special session. ACES had two goals. First, it replaced a year-old plan called PPT that was mired in corruption and was widely distrusted. No problem there. Second, it was designed to increase revenue. PPT had raised revenues by $1 billion, but that was still less than everyone expected. So Palin's plan increased that by another $700 million.

But it gets even more interesting. ACES, of course, is a tax on the oil industry, since that's how the rugged individualists up north fund themselves. (In addition to massive infusions of federal cash, that is.) And it had three basic provisions:

  • An increase in the basic tax rate on oil company profits from 22.5% to 25%.

  • A windfall profits provision. When oil prices went over $50/barrel or so, the tax rate would rise 0.2% for each dollar.

  • A tax floor. If oil prices fell below about $40/barrel, oil companies would still have to pay 10% of the gross price of the crude they produce.

Palin was especially dedicated to the windfall profits provision, or "progressiveness," as she calls it. For example, here's an op-ed she wrote about how the various pieces of her plan work together:

Progressiveness is the additional share we capture when oil prices and profits are high. I chose to set the progressiveness knob [i.e., the windfall profits tax] at a relatively low level in exchange for more security when prices are low. We accomplished this through a gross tax floor at our legacy fields. If the Legislature chooses to discard that floor, then the knob on progressiveness needs to be set higher — to make sure we capture a more equitable share when prices are high and profits extraordinary.

In the end, the Alaska legislature took Palin's plan and ran with it. The final version twiddled the knobs and ended up producing not $700 million in additional revenue, but more like $2 billion or so. Palin proclaimed herself delighted with the result and said she had no problem with signing an even bigger tax increase than she had originally proposed: "When I rolled [ACES] out," she said after the final version passed, "I had said I was so anxious to work with lawmakers to make this even better."

Now here's the thing: as near as I can tell, Palin actually did a pretty decent job of working with a fractured state legislature to produce a new tax regime in a short period of time. But a tax hike is a tax hike. Here, for example, is the reaction of cranky conservative Anchorage talk show host Dan Fagan:

Most folks think the oil industry with its so-called obscene profits can absorb a 2 1/2 percent increase in taxes. But even the 2 1/2 percent rate increase the media focus on, represents a 10 percent hike in the 22.5 percent production tax. But there is so much more.

Here's what most who rely on the mainstream media for information would be surprised to know. The governor's tax represents a 400 percent increase in the amount of production taxes paid. Four hundred percent increase, not 2 1/2.

....But where the Palin money grab really affects future investment is with the marginal tax rate. At today's oil price, every new dollar the industry earns in our state, the government takes a mind-boggling 85 percent.

Etc. If Palin were a Democrat, this is the kind of jeremiad you'd be hearing from Rush Limbaugh and Grover Norquist, but instead of talk about looting American businesses and destroying incentives to invest, we get crickets. Norquist doesn't even mention taxes here and Limbaugh, who's been talking up Palin for a while, doesn't either. "Babies, guns, Jesus. Hot damn!" was his reaction yesterday.

So: one of the first things Palin did after she took office was to propose a big tax increase that included a windfall profits tax on the oil industry. I don't have a big problem with that, and I'm sure the McCain campaign will eventually treat us all to a blizzard of spin about why her tax increase wasn't really a tax increase. But facts are stubborn things, and somebody really ought to poke the conservative anti-tax intelligentsia a little harder about how they feel about this. Grover? Rush? Newt? Sean?

UPDATE: It turns out there's more! "Hockey mom" Sarah Palin, when she was mayor of Wasilla, was the prime advocate for a sales tax increase to fund a huge new sports complex there. What's more, she bungled the land acquisition, which meant the city ended up paying $1.7 million for the land instead of the planned $146,000. That's fiscal conservatism we can believe in!

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