Saturday, September 06, 2008

Palin's economics: Federal largesse & petro-state populism

What is Sarah Palin's actual record on economic issues? That will take a while to figure out completely, but some of the main outlines are already becoming clear.

Palin is being touted--and touting herself--as a reformer and a "strong fiscal conservative." Well, she does seem to be a reformer in some respects (especially if you regard levying a hefty windfall tax on oil companies as reform), and she really does seem to have broken with the generalized culture of financial corruption that pervaded the Alaska Republican establishment.

(It would appear that Palin's own temptations toward political corruption involve the use of government office to pursue a petty family vendetta. Those allegations haven't yet been proven, though they're looking increasingly plausible, and the fact that Palin is stonewalling the Legislature's investigation doesn't look good.)

But the "fiscal conservative" bit is entirely bogus.

=> On Palin's record as Mayor of Wasilla from 1996-2002, I ran across the following post by a contributor to the on-line discussion forum of Republican TV pundit Sean Hannity that concisely sums up some facts that have already been established elsewhere:
Hi all, just wanted to share some interesting info on how well Sarah Palin ran her town as Mayor and how fiscally conservative she is. I'd like to discuss some of these revelations and see how it's going to play out against Obama and the election.

-She campaigned in Wasilla as a "fiscal conservative". During her 6 years as Mayor, she increased general government expenditures by more than 33%.
-During those same 6 years the amount of taxes collected by the City increased by 38%. This was during a period of low inflation (1996-2002).
-Palin reduced progressive property taxes and increased a regressive sales tax which taxed even food.
-She inherited a city with zero debt, but left it with indebtedness of over $22 million.

Can we discuss these items and figure out where the disconnect is? Where is the fiscal responsibitiy and why was she sold as one at the RNC? Thanks.
As I noted a few days ago (in discussing some of Palin's prevarications), Wasilla's indebtedness went up even though Mayor Palin was also an earmark queen who brought in truly impressive per capita levels of federal pork-barrel funding--almost $27 million in federally-funded projects for a town of less than 7,000 people. Well, that's the way politics is conducted in Alaska. But it's hard to take seriously the notion that Palin's record (unlike McCain's) shows any significant or principled opposition to Congressional earmarks.

=> As Governor, according to the small-government fanatics at the Cato Institute, she has no significant record as a tax-cutter, despite taking office at a time when the state is awash in oil revenues--though, admittedly, she has been Governor for less two years. Instead ...

... but let me just quote Cato's tax analyst, so no one thinks this is more sniping from the 'elite liberal media' or what George W. Bush just called "the angry Left":
Palin supported and signed into law a $1.5 billion tax increase on oil companies in the form of higher severance taxes. One rule of thumb is that higher taxes cause less investment. Sure enough, State Tax Notes reported (January 7): “After ACES was passed, ConocoPhillips, Alaska’s most active oil exploration company and one of the top three producers, announced it was canceling plans to build a diesel fuel refinery at the Kuparuk oil field. ConocoPhillips blamed the cancellation on passage of ACES [the new tax].

[JW: Well, they would say that, wouldn't they?]

[....] There are good reasons for an oil-rich state to tax oil production, but a fiscal conservative would usually use any tax increase to reduce taxes elsewhere. Perhaps I’m missing something, but I see no evidence that Palin offered any major tax cuts. She did propose sending $1.2 billion of state oil revenues to individuals and utility companies in the form of monthly payments to reduce energy bills, but that sounds like welfare to me, not tax cuts. [....]
One way that Palin did cut taxes was to enact a one-year fuel-tax holiday. Readers may remember that back during the Democratic primaries, Hillary Clinton similarly proposed combining a fuel-tax holiday with a windfall-profits tax on oil companies. That proposal was lambasted across the board as a cynical gimmick that would accomplish no useful purpose--one more piece of evidence that Clinton was a despicably cynical pandering politician. McCain, who proposed the fuel-tax holiday in the first place, but without a compensating windfall-profits tax (which would have sent most of the gas-tax money directly to the oil companies, not to consumers), largely got off scot-free.

Well, those proposals may or may not have been good ideas, but at the time no one described them as examples of "fiscal conservatism." Instead, they tended to be described, fairly or unfairly, as irresponsible populist pandering. And now?

=> But all those are details. What's the big picture?

The Economist, which is a pro-market magazine but not a straightfoward propaganda organ of the US Republican Party, makes some obvious points that don't seem to have been mentioned at the Republican Convention or in most of the news coverage about it ("From pork to petrodollars"):

John McCain's decision to anoint Sarah Palin as his running-mate looks eccentric for many reasons. Not the least is economic principle. Thanks in part to Mrs Palin, Alaska’s economy is built on two things that Mr McCain has spent the last few years railing against.

The first is federal spending, especially the little-scrutinised grants known as earmarks. Between 1996 and 2006 per-capita federal spending in Alaska rose from 38% above the national average to 71% above. Scott Goldsmith, an economist, reckons a third of all jobs in the state depend on it. [....]

Mrs Palin has been less single-minded in her pursuit of pork than other Alaskan politicians (which is, admittedly, setting the bar pretty high).

[JW: I'm not sure of their basis for saying that, actually. One of Palin's innovations as Mayor of Wasilla, for example, was to have the town hire a full-time Washington lobbyist--a former chief of staff to indicted GOP Senator Ted Stevens, Alaska's earmark king, who also worked with the convicted super-crook lobbyist Jack Abramoff--charged with garnering earmark funds, and Palin has continued to seek them as Governor. However, the fact that Senator Stevens is under indictment for petty corruption has made it harder for him to deliver.]

But she can take credit for the other pillar of Alaska’s economy: windfall taxes. Last year she championed a tax hike on oil companies which is helping bring in huge sums—more than $10 billion in the fiscal year that ended in June, according to the companies that pay them. Suddenly flush, the state has promised $1,200 to every man, woman and child, ostensibly to cover the high cost of fuel.

That giveaway is just the start. Rather than paying taxes to the state, Alaskans receive cheques from it. In “The Simpsons Movie”, released last year, Homer Simpson is handed $1,000 at the Alaskan border for “allowing the oil companies to ravage the state’s natural beauty”. That is an understatement: this month’s payments from the Alaska permanent fund are expected to be about twice as big. With the fuel surplus, this alone would get a family of four three-fifths of the way towards the federal poverty line in the lower 48 states. And many Alaskans do not pay sales taxes. [....]

In other words, as I put it myself on Thursday (Palin's prevarications):
Alaska, like Saudi Arabia, is a big oil producer with a relatively small population, so Palin essentially levied a windfall profits tax on the oil companies used it to hand out $1,200 to each resident of Alaska. Applied to the US as a whole, an equivalent give-away would amount to some $360 billion. This kind of petro-state populism may or may not be a good idea, but it's the sort of thing that Republicans usually criticize when it's done in places like, say, Venezuela or Russia.
Speaking of low taxes, by the way, income taxes are low in Khaddafi's Libya, too. A government doesn't need to tax individuals when it can rely on fat oil & gas revenues, which it can then use to shower benefits on the populace from above. OK, using the money that way is better than stashing it in the Swiss bank accounts of rulers, their family members, and well-placed officials (which also happens in petro-states, usually on a massive scale). But it's not usually what Republicans have in mind when they talk about "fiscal conservatism." And don't Republicans usually criticize using public money for government handouts? (Perhaps, like the Cato analyst, I'm missing something.)

Frankly, I admire Gov. Palin for shaking down the oil companies--and I suspect that some of her enemies in Alaska politics are people who are upset because they're in the pocket of those oil companies, just like the national Republicans. (It's true that Palin hasn't put the oil executives in jail on trumped-up charges and seized their companies, so as a "reformer" in this area she's still a few steps behind Vladimir Putin. More like, say, Huey Long.) And it's not surprising that sharing part of the loot with Alaska's electorate has helped to make her popular.

But if she really wanted to use this windfall revenue for the public interest (as opposed to building up her own popularity), couldn't she have found other ways to do that? Norway, which has also had a big oil bonanza, is saving part of those funds for a rainy day and using part of it for long-term public investments (infrastructure, education, etc.). Could Alaska have considered doing something similar? Well, why should they? If they need money for infrastructure, they drill for it in Washington.

Yours for reality-based discourse,
Jeff Weintraub