The Campaign Spot

Uh-Oh: The Problematic Tax Breaks of ‘Sarah Palin’s Alaska’

It isn’t too hard to imagine this becoming problematic for Sarah Palin on the campaign trail, as noted by the Tax Foundation:

In case you missed it, small government crusader and Tea Party favorite Sarah Palin’s TLC reality show “Sarah Palin’s Alaska” received a $1.2 million subsidy from the state of Alaska. The show spent $3.6 million on production in the state, meaning that Alaskan taxpayers covered a third of the cost of the show. The show will apparently not have a second season.

Because Palin is no longer a public official, she does not have to disclose her income; if she were to run for the presidency, she would have to file certain financial disclosure forms with the FEC (some of the data from her filings as a vice-presidential candidate can be found here). Nonetheless, some reports have put Palin’s earnings from the program at “roughly $250,000 per episode, or $2 million in total.

Everything Palin has done has been perfectly legal, but it looks problematic for a crusader for small government to end up collecting a seven-figure paycheck from an endeavor that received a seven-figure subsidy, all set up by a program she signed into law. Of course, Palin set up the subsidy in 2008, and the TLC series wasn’t filmed until the summer of 2010, after Palin resigned as governor.

UPDATE: I see some Palin fans are quick to insist that there’s nothing worth criticizing here.

Alaska may be unique, in that the revenues from petroleum enable it to enjoy no state sales tax and no individual income tax, the lowest individual tax burden in the country. Oil revenues have meant that the state enjoys better budgetary circumstances and lower unemployment than most other states.  So a conservative may argue that in an era of a $1.6 trillion annual federal deficits, federal funding for PBS, NPR, the National Endowment for the Arts and National Endowment for the Humanities may be unaffordable luxuries, while finding no particular problem with the state of Alaska choosing to pay millions to subsidize television programming that they believe promotes the state’s image and attracts tourism dollars.

Still, should governments be in the business of subsidizing television programs? The precise arguments against PBS and NPR – that in today’s much more diversified media environment, almost all of the programming on government-funded radio and television networks could thrive in the private sector without government subsidy – would apply to the Alaska-based shows, no?

If a free-market conservative recoils at the idea of the government picking winners and losers in the market by, say, extending TARP funds to GM or punishing offshore drillers and subsidizing firms with self-proclaimed “green jobs”, wouldn’t  a state’s decision to fund Show X instead of Show Y seem comparably problematic? In light of all the legitimate needs for taxpayer dollars – police, hospitals, infrastructure projects — is bringing a film or television production crew to town really the best way to use taxpayers’ money?

The traditional argument is, “this creates jobs.” The defenders might even call it a stimulus program. Of course, measuring the precise job creation effect is challenging; according to a report in the Fairbanks Daily News-Miner, declares that “Sarah Palin’s Alaska” program’s “application does state 14 jobs, lasting an average of 2.5 months, were created in Alaska through the show. That is about $80,000 for each 2.5-month job.”

Late last year, Josh Barro, the Walter B. Wriston Fellow at the Manhattan Institute, looked at the business of film subsidies by cities and states and found them economically disappointing:

new report out Saturday from the Michigan Senate Fiscal Agency looked at that state’s film tax credit program — the country’s most generous — and found that even under the most optimistic assumptions, tax receipts driven by new economic activity barely offset 10% of the cost of awarding film tax credits. It estimates that the $125 million Michigan will spend on film credits in FY10-11 will generate just $13.5 million in new tax receipts, for a net fiscal cost of $111.5 million.

Overall, the report does not provide good news for supporters of film subsidies. The report finds the credits will generate just $78.5 million in private sector activity, well below their fiscal costs. It says job creation from film subsidies is “negligible” — since inception in 2008 they have raised employment in the state by just 0.016% — and notes that 47% of credit payments leave the state without generating any economic activity in Michigan.

Returning to Alaska, isn’t the idea of a state government subsidy for “Sarah Palin’s Alaska” particularly ridiculous? Doesn’t the concept and title alone make it all but impossible for the producers to film the program anywhere else? And with the program generating the epic media interest and monster ratings it did (averaging 3.2 million viewers), wouldn’t that make the program a worthwhile risk and profitable for the producers even without the state writing a check offering a tax rebate for $1.2 million to cover the production costs? (Upon further review, I see readers’ complaint that this wording misleads.)

UPDATE: Palin offers a comment on the matter to the Daily Caller, including:

“It’s also a false accusation to suggest that signing this bipartisan bill somehow goes against my position on the proper role of government. I’ve said many times that government can play an appropriate role in incentivizing business, creating infrastructure, and leveling the playing field to foster competition so the market picks winners and losers, instead of bureaucrats burdening businesses and picking winners and losers. Again, I can’t speak for what other states do, but Alaska’s film production tax credit program is an effective way to incentivize a new industry that would diversify our economy. It worked. The lawmakers’ successful legislation fit Alaska’s economy, as our economy is quite unique from other states’ due to our oil and gas revenue. Perhaps it would behoove people to learn much more about the 49th state’s young economy before making broad accusations about the efficacy of business programs.”

The problem is that every advocate of every tax break, subsidy, and earmark contends that their proposal “incentivizes business.”

If limited government is to mean something, it means there must be some areas of economic activity that government does not seek to steer, influence, promote, regulate, or restrict. Movie-making and television production would seem to be a good place to start.


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