Jun 10 2009, 9:10AM
Sarah Palin's Economics Lesson, Part Two
Via Chris Orr and Mudflats, here's a little taste of the exchange between Sarah Palin and Sean Hannity:
Hannity: ...The price of oil is going up again. It's not quite at $140 a barrel, but it's on its way up to $70 and $80...
Palin: Yeah, well and I thank God it's not at $140. You know people say, "Hey, Alaska! 85% of your state budget is based on the price of a barrel of oil. Aren't you glad the price is going up?" I say, "No!" The fewer dollars that the state of Alaska government has, the fewer dollars we spend. And that's good for our families and for the private sector.
Chris makes the excellent and obvious point about this: "Sarah Palin Prefers Her State Poor." If you're taxing the profits of the private sector, and suddenly the private sector is making a much smaller profit, it's not totally clear why this should be considered "good for our families and for the private sector."
But, to scratch a little bit deeper, one might also note that if Palin really truly wanted to get rid of all that pesky revenue, she doesn't have to sit around waiting for the price of oil to fall and the revenue to drop. She could also ... lower Alaska's tax on oil. Palin, of course, did the exact opposite of this and enacted a huge windfall profits tax in 2007 that greatly increased the state's reliance on oil. Here's how it's changed:
In fiscal year 2004 the state got 27.6% of its revenue from oil. In fiscal year 2008 the state got 86.26% of its revenue from oil. (The data is from the Alaska Department of Revenue sourcebook.)A final point to make might be that Palin said the opposite of her line to Hannity two days ago in a press release put out on her own website: "History reminds us that high oil prices are a double-edged sword," Governor Palin said. "The state treasury may swell, but Alaskans will feel the pain at the pump and the pinch of higher energy prices."
Unless I am badly misunderstanding the sword metaphor, or unless "pain at the pump" is the happy edge of this particular sword, Palin is saying it's a good thing that the state treasury swells when oil prices go up.
Is the graph mis-labeled on the Y-axis? (Or is the title wrong?)
could be either! I changed the title, thanks
Clearly the percentage of the Alaska state budget due to oil revenues has increased. (That may be as much due to the skyrocketing price of oil as to the windfall profits tax, but it's a fair argument.) Some other kind of state revenue must have fallen dramatically, otherwise the light blue line would track the dark blue line. I do not believe Alaska has a sales tax, property tax or income tax. What are those falling revenues?
Kudos for using more relevant data than in your last Palin post, but I have to wonder where your preoccupation with her comes from.
Well thanks, MO -- certainly didn't expect to receive a compliment from you!
lol. You're welcome. I try to be fair.
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My initial research into my own question suggests the state is receiving less from investment income (natch) and federal revenues (which would be another dagger in Palin pt. 1). Do you have a preference between whether Alaska gets more revenue from business activities in Alaska or from federal transfers? As a nonresident of the state, I think I would prefer the former.
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A bit more about the oil production tax in Alaska: "The tax in Alaska is a graduated tax on profits based upon the price of a barrel of oil. For example, if oil is $52 per barrel, the tax rate is 25%. If it is $120 per barrel, then the tax rate is about 50%." This suggests the spike in revenues was in fact due to the high price of oil. The net effect on oil production should be somewhat neutral: higher commodity prices would incent companies to produce more, while the progressive tax rate would incent companies to produce less. The fiscal effect should be neutral as well: the higher tax revenues are refunded to residents to offset the higher energy prices; when energy prices are low, theoretically, there would be no transfer payment, reducing state spending. Is it "conservative"? I don't really know, there's no "liberal" comparison anywhere else.