I may have been wrong about Palin’s “windfall profits” tax.

It was a severance tax, which is something else entirely.

The tax in question isn’t a windfall profits tax. It wasn’t designed based on a perception that one element of society was reaping a windfall that needs to be seized and re-distributed (which is Barack Obama’s plan).

Rather, this is a severance tax. You may be a far better tax lawyer than I am — that’s likely if you have any expertise in tax law at all! — but I did have occasion a few years ago to learn something about severance taxes. I was representing Conoco in a lawsuit against Mobil involving jointly owned oil and gas leases in Idaho. The contract between them made one kind of provision for sharing the expense of paying “property taxes,” and a different kind of provision for “income taxes.” So the question arose whether the Idaho severance tax was a “property tax” or an “income tax.” The answer was “property tax,” because severance taxes are, by their nature, a tax on certain types of property — typically subsurface oil, gas, and minerals — that cannot be accurately measured for taxation purposes until they’re produced. Once they’re produced, however, they’re typically carted off outside the state’s borders, so traditional forms of property tax don’t capture them in the state’s tax base. Severance taxes therefore are imposed on those substances when they’re produced, and they’re typically calculated based on the market value when produced.

Sarah Palin didn’t pass a new type of tax at all. Alaska, like most oil-producing states, had long had a severance tax. But the rate for Alaska’s pre-existing severance tax, 22.5%, had been set in closed-door negotiations between the energy companies who rule the roost in Alaska (ExxonMobil, ConocoPhillips, and BP) and an ethically challenged governor and legislature. One of Sarah Palin’s campaign planks when she ran against that governor (Frank Murkowski) was that she would re-visit that entire subject, and replace it with a new tax that was the product of transparent negotiations and discussions fully disinfected by the sunlight of publicity. As a result, the new structure that the legislature passed and that she signed drew wide support from both Republicans and Democrats.

So how much of a tax increase is it, compared to what went before? From 22.5%, it went up to 25%. That’s a very modest, almost symbolic, increase.

The Alaska severance tax was previously progressive, and it became slightly more progressive. Under Palin, the additional tax imposed above the base rate went from 0.25% on proceeds above $30/bbl up to 0.4% — again, hardly a confiscatory increase! On proceeds above $92.50/bbl, the rate drops back down to 0.1%, which was actually a tax reduction compared to what had gone before, and a very significant one when oil is up in the $130-$140/bbl range.

My main source for this information is one with which you’re probably familiar, cchtaxgroup.com. I’ve previously posted on this at my own blog, here and here. By no stretch of the imagination is Sarah Palin engaged in class warfare, nor is she demonizing energy companies. Rather, she’s incentivizing them, and setting them up at competitive purposes against one another for the benefit of the taxpaying public. I think she’s done a job that any committed conservative can, and should, applaud. I hope you’ll consider revising your own views in light of these additional facts.