Sarah Palin's Taxes

Given the battery of problems President Obama’s Cabinet nominees and prominent Democrats have had paying their taxes, Democrats are undoubtedly relieved to see that a review by the State of Alaska has concluded that one very prominent Republican – Governor Sarah Palin – also owes the IRS money (H/T). The facts about Palin’s taxes, however, are dramatically different from those of Democrats like Tim Geithner, the man who now oversees enforcement of the tax code. Here’s why.

The issue raised back in October was whether Gov. Palin should have reported as income the per diem reimbursements she receives for meals and other expenses on days doing state business at her home in Wasilla instead of the governor’s mansion in Juneau; as the AP notes, “Juneau, in the Alaska Panhandle 600 miles from Wasilla, is only accessible by airplane or ship.” (We looked at the merits of the per diem reimbursements, which were dramatically lower than those collected by her predecessor, back in September). The McCain-Palin campaign responded by producing a legal opinion from tax counsel noting that the State of Alaska has traditionally not treated these reimbursements as income to state employees and has not included them on Forms W-2. Palin followed up by ordering the state Department of Administration to conduct a review of that policy. Unlike the Democrats, so many of whom seem to be playing entirely by rules of their own, the review affects other state employees besides the Governor:

Some other state employees also owe back income taxes for travel payments and will be getting revised tax forms, Annette Kreitzer, state administration commissioner, said in an e-mail.

She wouldn’t say which, or how many, employees will be receiving the notifications.

As the Anchorage Daily News report (which also details back taxes owed by newly-elected Democratic U.S. Senator Mark Begich on a car provided to him) notes, Alaska has to deal with a whole separate set of rules for state legislators:

The new determination by administration officials won’t affect state lawmakers, said Pam Varni, director of the Legislative Affairs agency.

Under IRS guidelines, legislators receive tax-free payments to help with living expenses while in Juneau for the legislative session — if their home is at least 50 miles away, Varni said.

The current rate, set by the U.S. Department of Defense, is $189 a day. That goes to everyone except the three Juneau-based legislators, who get smaller payments that are taxed as compensation.

Legislators can also charge the state $150 a day for time spent on state business when the Legislature is not in session, but those payments are taxed as income, Varni said.

Have fun keeping all that straight. One of my longstanding beefs with the picayune complexity of the campaign finance laws is applicable to tax law as well: if you wouldn’t want a politician you support getting un-elected or indicted for violating the rules, maybe the rules are just too complicated.

Anyway, Palin’s situation, in which her tax preparer reported only the income on her W-2, is rather dramatically different from that of, say, Geithner, who was given a manual by his employer explaining the taxability of his benefits and reimbursement for the taxes, and he still didn’t pay them, and paid back less than all the back taxes he owed (only enough to avoid an enforcement action). Here, the state had a mistaken policy that appears to have predated her tenure as Governor, and that affected other people besides her. It’s embarrassing, to be sure, but efforts to seize on the story are simply a sign of the Democrats’ desperation to divert attention away from the beam in their own eye.