These are exerpts from a piece in the WSJ.
Oil companies in Alaska are paying more money in taxes than ever before. The state’s oil and gas tax revenues for its just-ended fiscal 2007 topped $10 billion. That’s twice as much as fiscal 2006 and four times more than 2004.
Some supporters of Barack Obama see that money coming in and say that John McCain’s running mate, Alaska Gov. Sarah Palin, must have done what Sen. Obama wants to do — sock those companies with a big fat windfall profit tax. This is a deeply misleading reading of her 2007 tax reform.
A few years ago, Alaska had a big problem. Despite high oil prices, the state’s fiscal future was in peril because the state relies on only three aging oilfields for 80% of its oil and gas tax revenue.
As a new governor in 2007, Mrs. Palin stepped in to address the fiscal crisis and restore accountability. Working with Democrats and Republicans alike, she chose a 25% profits tax. But in lean years the state reverts to a 10% gross revenue tax on legacy fields that do not require massive continuing inputs of new capital.
Relative to the old system, Mrs. Palin’s plan — called “Alaska’s Clear and Equitable Share” (ACES) — improves incentives for developing new resources. It ensures the state does well in boom times — as it is doing now — when oil prices are high. But it also hedges against low prices in the future by ensuring that oil companies exposed to commodity price swings don’t face a crushing tax burden when commodity prices fall.
Her plan includes an escalator clause that gives the state a larger share of revenues when oil prices rise. This is common to production-sharing agreements all over the world.
Mr. Obama proposes to give each American a $1,000 check funded by windfall profit taxes to ease the pain of high energy prices. Some say Mrs. Palin’s ACES is like that, because this year every Alaskan will receive a $1,200 check as a share of the oil bonanza. (The check comes in addition to the approximately $2,000 every Alaskan will receive this year as a dividend from the Permanent Fund, which was established by state constitutional amendment in 1976 as a way of sharing the state’s mineral wealth with the people.)
The real comparison is not between Mr. Obama’s windfall profit tax and Mrs. Palin’s risk-and-profit-sharing plan. It is between Alaska’s constitutional rule — that the people must share directly in the state’s mineral wealth — and Mr. McCain’s proposal that coastal states should share in federal offshore oil revenue. His plan is for the funds to be used for public purposes like roads, schools and conservation. A share of royalties dramatically improves the coastal states’ incentive to support drilling. But if Mr. McCain offered every individual American a royalty check too, he might find it easier to sell his program.