Topic: Energy
Obama Brings Idiocy to the Gas Crisis Obama has proposed a windfall profits tax on oil companies. This could be one of the stupidest solutions for high priced gas that could be thought up.by Taliesin
(Libertarian)
Saturday, June 28, 2008
To realize why the plan to tax oil companies is such a bad idea, we must first look at the recent history of another commodity industry where the government has used taxes as a means of regulation and source of revenue.
Let's set the scene. Big Tobacco is under fire in court. They are on the ropes, they've been hit with a few multi-billion dollar judgments. Where is the money coming from? Well, their customers of course. With the verdicts brought against Big Tobacco, our justice system pretty much guaranteed that the tobacco user would be gouged for money. Sure the companies are the ones ultimately signing the check, but the extra cost of paying off the lawsuit was tacked onto each product those companies made.And then the States added some extra taxes for various reasons. The cost of a pack of cigarettes has doubled, even tripled and beyond in the past 10 years. I remember paying $1.90 a pack the week before the big multi-state judgement was handed down approximately 8 years ago. The cost of a pack is now anywhere from $5 to $7 depending on the brand.
Luckily for big tobacco and the states that have now come to depend on the regular installments on this pay-out, the tobacco user is an addict. It took a lot for the customer base to really quit in large numbers, but it did happen. With each drop in customers, the price of tobacco went up. The lawsuit had to be paid. So did the taxes that government took from tobacco sales. One just has to go to a southern state, or even a state like Delaware, with no sales tax (average "name brand" pack price- $3), to understand that most of the retail cost of tobacco doesn't go to the companies that sell the product. It goes to the government. The rest goes to the companies, but the advertising and manufacturing costs come out of that. So on your average pack of cigarettes, the state is raking in the most profit.
But what does this have to do with oil?
Well, everything really. Oil, much like tobacco, has become an addiction. Oil derivatives have become so useful and widespread that it would be a calamity if oil was withheld. Also, just like tobacco, taxes that are tacked onto gas exceed the average profits made by the companies that actually sell gas. The federal tax is 18.4 cents and the individual states tack on a bit more, the average we pay in taxes on a gallon of gas is 47 cents per gallon. The average company profit made on a gallon of gas is 9 cents. Now obviously, if the Federal tax was lifted it would only drop the price by 18 cents, not much of a savings for the consumer paying $4 a gallon. However, if we then went ahead and taxed larger profits from oil companies, they would react exactly as the tobaco companies did. They will raise their prices to pay for it. We would end up paying it anyway. And consider that the oil companies sell wholesale. The markup they charged will be amplified in the retail market. We would actually end up paying more.
The Democrats, specifically Obama have proposed this plan, which is entirely consistent with Democrat ideals. Namely, tell the poor that the rich are to blame and will be made to pay. The poor are usually living day by day and can't afford to think long term. They are too busy surviving until tomorrow. This tactic will garnish some solid votes in exchange for a short term solution that will end up hurting the poor more than the rich in the end. But that's an advantage if one is a parasite of the impoverished. You sell them hope and deliver promises of more hope while working day and night to steal their money or guarantee they can't make much money so that all they are left with is hope. It really is an audacity, Barack, it really is.
At any rate it's a stupid plan, but it sounds good to people who can't afford the price of gas and can't afford not to buy it either. Punish the oil companies, get votes, spin the inevitable price jump so that it's still the fault of the oil companies. Reap more poor people and therefor more votes. So here comes Obama leading the charge, bringing this idiotic solution, but not because he's an idiot. I don't think anyone in his position could be that naive. He's smart enough to know how to keep the Democrat power base from actually getting enough breathing room to think. He is betting that Americans are idiots and could potentially become more so with a little less money. Is he right? Well, unfortunately, look at his numbers.
Maybe he is.
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Posted By: Christopher Espinal
Date: 2008-06-28 18:30:03
I think you are wrong on almost every front. Taxing oil suppliers will not necessarily increase the price on consumers. Read my column: [link edited for length].
Just so we're on the same page. The plan is to replace the tax for the summer, we'll say 90 days on that. We consume approximately 170 million gallons of gas per day. The tax being replaced is 18 cents per gallon. So to replace the federal gas tax for the summer we would have to hit these companies for approximately 2.8 billion dollars.
I'm not basing my opinion on charts or statistics or theories. What I am doing is noting that very few companies are willing to pay higher taxes. Companies spend a great deal of time avoiding taxes. I spoke to one business owner who spent a quarter of a million dollars on inventory in the last quarter of 2007 to reduce his taxes by $60,000. This is not a theory, this is just one of those things that occurs. The higher tax will be added to the cost of doing business and prices will rise accordingly, just like any company would do if their costs rise. It is the simplest solution, much easier than trying to limit tax liability on a few billion dollars or moving the entire company to another country.
Once you factor in how much oil companies reinvest their profits back into the business, oil companies are actually behind tobacco companies in terms of cash flow. So if the tobacco companies had to pass their increased costs onto the consumer, how do we think the oil companies will handle it, especially considering that their product has more captive customers than tobacco?
Bottom line: Big Oil will not accept the cost of replacing federal gas taxes. Nothing in the behavior of any large corporation would indicate that they would. And no American politician has enough power to force them to. They will pass it back to us. Possibly they would spread out over the myriad products they produce, but we will still be the ones paying money for the illusion of saving money.
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