A strange alliance has developed in Alaska that pits former Governor Sarah Palin and some of that state’s Democrats against the current Republican administration over the issue of oil and gas taxes, according to a Tuesday story in the Wall Street Journal. Palin favors increasing taxes to the level they were when she was governor, when she instituted a higher, progressive tax on oil and gas in Alaska. They were subsequently lowered after she left office.
In a Facebook post supporting an upcoming referendum that would restore tax rates on oil profits, Palin recounted the culture of corruption that existed in Alaska when, she suggests, oil companies and public officials colluded to provide special favors for the former. The tax which she helped to pass, called Alaska’s Clear and Equitable Share (ACES) had a number of provisions.
It levied a tax on net profits after expenses. It provided a credit for capital investments in Alaska. It encouraged new exploration by having the state pay up to 40% of oil or gas producer’s exploration costs. Finally it replaced a regressive tax system with a progressive tax system, with increases and decreases based on the price of oil and a producer’s level of investment. The tax rate was progressive, ranging from 25 percent to as much as 75 percent on oil profits depending on the price of oil.
In 2013, ACES was replaced by More Alaska Production Act (MAPA) which scrapped the progressive tax in favor of a 35 percent flat tax. The referendum, to be voted on Tuesday, would repeal MAPA and restore the tax structure to that of ACES. In the balance is a source of much of the state of Alaska’s revenues.
Which tax structure provides a better incentive for oil and gas production in Alaska depends on who one asks. Also at issue is the effect of Palin’s weighing in on the referendum. On the one hand she is not very popular in her home state, according to one recent poll. One the other hand proponents of the referendum hope her support will put the matter over the top by attracting undecided conservatives.
The matter illustrates a paradox about Palin that both her supporters and those who hate her are generally unaware. She favors free market capitalism, but also regards the influence of large, oil corporations on Alaska as pernicious. She is in favor of increased oil and gas production, advocating for example the opening of ANWR to drilling, but she wants the Alaska government to get its “fair share’ of oil and gas profits. Hence the tea party favorite is actually coming our in favor of a tax increase in this instance.