or, How Alaska’s Massive Oil & Gas Windfall Profits Tax
Transfers Wealth from Other States to Alaska Citizens
Sarah Palin’s opening salvo at the Republican National Convention was an impressive performance. Although heavy on snide and cynical remarks, Palin’s speech demonstrated unequivocally that she will be a force to be reckoned with in this election. Yet in her speech and in the days since, Palin has been caught repeatedly lying (e.g., "I said thanks but no thanks on that Bridge to Nowhere"), or at a minimum fudging the truth (e.g., "I put it on eBay," implying but not stating that she sold the state jet there). Even so, another little lie of hers has gone unnoticed – her lie about Alaska’s taxes.
[EN=Endnote]
I’m calling it a little lie, because it’s not the biggest lie in the world. And it’s not as headline-catching as the Bridge to Nowhere flap. But, while it may seem like small lie at first, it was an intentional one designed to make her look good. The misleading statement and glaring factual omissions she made about her personal role in heavily taxing the Alaska oil and gas industry, when combined with all her other lies and distortions, speak directly to her personal character and fitness for office. The misstatement and omissions also reflect a fundamental inconsistency between her own pro-tax actions and the adamant anti-tax statements she made in the same speech, not to mention a major inconsistency with fundamental Republican anti-tax principles.
In referencing her experience as Governor of Alaska, Palin stated, "Our state budget is under control. We have a surplus." [EN1] So far, so good. Then Palin stated, "When oil and gas prices went up dramatically and filled up the state treasury, I sent a large share of that revenue back where it belonged: directly to the people of Alaska." [EN2] Here is where the problems begin.
First, for the glaring omissions. Palin’s statement confusingly and rather nonsensically suggested that "oil and gas prices . . . filled up the state treasury." In fact, what filled the Alaska state coffers were the proceeds of a heavy "windfall profits" tax on oil and gas revenues that Palin herself advanced. [EN3] According to the Alaska Oil & Gas Association, the Alaska tax generated an estimated $6 billion in the 2007-08 fiscal year. [EN4] Due to this over-funding the state budget, Gov. Palin proposed and the Alaska legislature enacted a special state payment of $1,200 to every Alaskan this year. [EN5]
In addition, in stating in her speech that she sent a "large share of that revenue . . . to the people of Alaska," Palin neglected to mention that the money in question was not oil and gas revenue, but state tax revenue. In fact, nowhere in this statement (or elsewhere in her speech), did Palin refer to the fact that the state budget surplus was caused by tax revenues from the tax that she helped enact.
Now for the little lie. In her speech, Palin stated, "I sent a large share of that revenue back where it belonged: directly to the people of Alaska." [EN2] The seemingly small lie is that Alaska did not give the (tax) revenue "back" to the Alaskans, because that presupposes that they are the ones who paid it in the first instance. In fact, the oil and gas companies paid the taxes. If the taxes were to be given "back," they would have to be given back to the taxpaying companies.
Perhaps more important, though, is Palin’s misleading statement that the tax money went "back" to Alaskans, when in fact this was another of the ways in which Alaska has cleverly transferred huge amounts of wealth from Americans in the other 49 states to its citizens. The oil and gas taxes that were paid by those companies were in all likelihood passed on to their customers, namely refiners and petroleum distributors, who in turn passed those costs on in higher energy prices all the way down the line to the ultimate energy consumers – the individuals, companies and governmental units that all purchase oil and gas and their derivatives including gasoline and fuel oil. By far, the vast majority of those products are not consumed in Alaska but in the other 49 states. [EN6] Through these taxes, Alaska has managed to transfer huge amounts of money from the citizens of other states to its own government and now directly to its citizens.
Oddly enough, the Alaska windfall profits tax is exactly the type of tax presidential candidate Sen. John McCain has decried as a tax that would "increase our dependence on foreign oil and hinder exactly the same kind of domestic exploration and production we need," and that Congressional Republicans opposed for the same reason. [EN7]
The oil and gas tax surplus payment to Alaskans is on top of dividends paid to them from the Alaska Permanent Fund (APF). The APF is a fund derived from state revenue from mineral leases, royalties, royalty sales, federal mineral revenue-sharing payments and bonuses. [EN8] In 2007, the APF paid approximately $1 billion to Alaskans, with an estimated $1,654 paid in approximately 600,000 checks sent to every man, woman and child who is a resident of Alaska. [EN9] The APF, established shortly after construction of the Trans-Alaska Pipeline, has paid these dividends to Alaskans for 25 years. [EN10] In fact, the payments are so lucrative and attractive to outsiders that here is a whole dispute resolution process, including appeals, for determining who is a "resident" qualifying for these payments. [EN10]
For 2008, the APF payout has just been announced at $2,069, which will be combined with the Palin budget surplus payment of $1,200 for a total of $3,269 paid to each and every Alaskan resident. [EN11] For Palin’s family of seven, that means a total state payment of $22,883. Not bad considering they didn’t have to do anything to earn it. And remember, it’s not a refund of any taxes they ever paid, other than perhaps a small amount of the oil and gas tax they paid in their own personal energy purchases. The rest is pure, free money from the state.
None of this is to say there is anything inappropriate about a state selling natural resources or taxing sales of derivative products; surely every state does so. The evil, if one can call it that, is a state collecting so much revenue from these sources that they exceed the very cost of operating the entire state government, and then transferring the surplus proceeds to its own citizens. [EN12] Its citizens, of course, derive great personal benefit from such programs and would never ask their governmental leaders to end the practice. On the other hand, the citizens of other states who effectively fund most of these revenues are almost entirely unaware of them and, even if they were aware, are essentially powerless to do anything about them.
So, Gov. Palin made a powerful presentation but it contained yet another small lie, but one that is very revealing about her own actions promoting heavy state taxation, including an oil and gas windfall profits tax. It was also revealing that she was unwilling to properly identify the source of the state’s surplus and citizen dividends as being from such taxes. Nor was she interested in revealing that the ultimate taxpayers who funded such payments to Alaska residents are primarily the citizens of the other U.S. states.
11/5/08 UPDATE: Another Kosser pointed out that one of the Palin children is an adult so would get his own check, and their youngest was not born until 2008 so would not have been included in the 2008 distribution based on 2007 residents. That means the 2008 distribution to the Palin family would have been 5 times $3,269 or $16,345. Of course the oldest son did get a check too, and the family now has one more child to get a payment for in 2009.
ENDNOTES
1. http://elections.nytimes.com/... (accessed 9-8-08).
2. http://elections.nytimes.com/... (accessed 9-8-08).
3. A. Gonzales and H. Burnton, "Windfall tax lets Alaska rake in billions from Big Oil," Seattle Times, http://seattletimes.nwsource.com/... (8-10-08, accessed 9-8-08).
4. As referenced in A. Gonzales and H. Burnton, "Windfall tax lets Alaska rake in billions from Big Oil," http://seattletimes.nwsource.com/... (8-10-08, accessed 9-8-08).
5. Alaska Daily News, "Palin’s energy relief: $1,200 each," http://www.adn.com/... (6-21-08, accessed 9-4-08); A. Gonzales and H. Burnton, "Windfall tax lets Alaska rake in billions from Big Oil," Seattle Times, http://seattletimes.nwsource.com/... (8-10-08, accessed 9-8-08); Alaska Daily News, $1,200 Checks (update) (6-20-08, accessed 9-4-08); "Alaska Legislature passes $1,200 energy rebate, Fairbanks Daily News-Miner, http://www.newsminer.com/... (8-7-08 accessed 9-4-08).
6. Seattle Times, "Where would ANWR oil go?," http://seattletimes.nwsource.com/... (4-19-05, accessed 9-5-08); Library of Congress, Congressional Research Service, "West Coast and Alaska Oil Exports," http://ipmall.info/... (5-6-05, accessed 9-5-08), updated 5-25-06 http://ncseonline.org/... (accessed 9-5-08).
7. A. Gonzales and H. Burnton, "Windfall tax lets Alaska rake in billions from Big Oil," Seattle Times, http://seattletimes.nwsource.com/... (8-10-08, accessed 9-8-08).
8. Alaska law, Art. 01, Sec. 37.13.010, http://www.apfc.org/... quoted in http://www.apfc.org/... (accessed 9-4-08).
9. Alaska Permanent Fund, 2007 Annual Report, http://www.pfd.alaska.gov/... The report states the amount is estimated because all determinations were not final as of the date of the report (accessed 9-4-08); http://en.wikipedia.org/... (accessed 9-4-08).
10. Alaska Permanent Fund, 2007 Annual Report at 26; http://en.wikipedia.org/... (accessed 9-4-08).
11. "Oil windfall leads to $3,269 payout for Alaskans," Reuters, http://uk.reuters.com/... (9-6-08, accessed 9-6-08).
12. There are other revenue sources to the state, of course, but no state income tax.