Posts Tagged ‘windfall profits tax’

Messiah Obama Really IS The Second Coming… Of Jimmy Carter

August 12, 2008

There are a lot of striking parallels between Jimmy Carter and Barack Obama that people more astute than I have already contemplated:

– both were Democrats.

– both were young men.

– both had relatively little political experience prior to running for President.

– both had little in the sense of any meaningful accomplishment to point to.

– both began as outside of their Party’s inner circles.

– both built early excitement by winning early caucus primaries.

– both have run on a campaign featuring vague promises of change

– both had the eager embrace of the mainstream media.

– both were featured as having great intellects.

– both were/are foreign policy disasters just waiting to happen.

Israel Matzav noted:

The media discovered and promoted Carter. As Lawrence Shoup noted in his 1980 book The Carter Presidency and Beyond:

“What Carter had that his opponents did not was the acceptance and support of elite sectors of the mass communications media. It was their favorable coverage of Carter and his campaign that gave him an edge, propelling him rocket-like to the top of the opinion polls. This helped Carter win key primary election victories, enabling him to rise from an obscure public figure to President-elect in the short space of 9 months.”

Prior to his run, Jimmy Carter was such an unlikely presidential candidate that when he told his mother he was running for president, she asked, “Of what?”

Gerald Ford, rendered unpopular by being the president who dealt with the stench of Watergate, who pardoned Nixon, and who presided over an unfortunate period marked by our withdraw from Vietnam and the resulting damage to our prestige, found himself 30 points behind the new media darling – until his campaign hit on a strategy that nearly brought him all the way back: they focused on his His lack of experience, his lack of accomplishments and his lack of specificity on the issues. “The Ford forces pounded away at the experience question and painted Carter as a political illusion, an affable-seeming politician who was terrified of expressing his opinion on any controversial topic.” Had the campaign lasted just a week longer, many believe Ford could actually have pulled off the victory.

But that stuff – although interesting – is not what I wanted to focus on. Rather, I wanted to focus on their similarity on energy.

Namely:

1) both advocated a strategy of conservation.

2) both promised alternative energy over oil.

3) both called for a windfall profits tax on big oil companies.

Let us be frank: there is very little, if anything, that is signicantly different between Carter’s colossol failure of an energy policy and what Obama is pandering, I mean proposing.

Let me begin with 1) the strategy of conservation at the expense of increased production.

Jimmy Carter famously put on a cardigan and gave us high-minded exhortations to save on our heating bills by wearing sweaters. On a superficial level it was very true: by wearing sweators during the winter we could save oil.  It was good as public service announcement.

But as an energy policy it was laughable. And it was part of the reason he got clobbered when he ran for re-election.

When Barack Obama calls for every American to inflate their tires, it is absolutely 100% identical to Carter calling for every American to wear their sweaters.

We need more energy, not less. Our population is continuing to grow. Do you want to grow the economy as well? Do you want to create more jobs? Do you want more homes and businesses? Do you want more development, and a more modern, more mobile, and more powerful economy? Then you want more energy. And you need to vote for a president who will produce that energy.

Consider 2) the promise to develop alternative energy over oil. Barack Obama is promising to increase our “alternative energy” dependence from a little under 5% of our total energy consumption to 10% of our total energy consumption.

But he is literally concentrating on that 5% of energy by ignoring the nearly 90% that is based on oil, natural gas, and coal (by the way, natural gas is found in/near oil deposits; and harvesting the one naturally results in harvesting the other).

When we subsidize, we punish things that are doing well in order to reward something that is performing poorly. When government (during the Carter years, by the way) began to subsidize corn-based ethanol, it picked the wrong horse (as so often happens). We are now creating food shortages in order to force something that Agriculture Department studies show cost several times what it costs to produce a gallon of gasoline. And about 70% more energy is required to produce ethanol than the fuel itself actually produces, which means every time you produce a gallon of ethanol, there is a net energy loss of 54,000 BTU.

The decision to subsidize ethanol was based on naked political prostitution to special interest money. Do you really want these clowns – who couldn’t even run their own cafeteria without running massive deficits – making these decisions?

Meanwhile , the United States is the Saudi Arabia of coal. And yet the same liberals that forced ethanol upon us are refusing to allow us to use it again and again. There is a deliberate rejection of American energy in pursuit of biofuels that do nothing but disrupt our food markets and drive up the real costs of energy. Children are literally starving because of these policies.

I mean, fine. Let’s do better to develop alternative energy sources. But to literally do so at the expense of our actual primary sources of energy – which will remain our actual primary sources of energy for decades by ANY standard – is foolishness beyond belief.

When Jimmy Carter was president, foreign oil represented a little less than 1/3 of our consumption; today it is over 70%. You tell me, which way is the trend going? We need to reduce our dependence on foreign oil for both our international competitiveness and for our security. And the ONLY way to do that right now is to drill for our own domestic oil. We are consuming more energy, not less. And at the same time we need that 70% figure to go DOWN, not UP. And we can only bring it down with a comprehensive energy policy that features drilling for our own oil in addition to conservation and alternative energy production.

Now let us look at the crowning policy of both the Carter and the Obama energy policy: 3) windfall profits taxes on big oil.

The current call for a windfall profits tax has been going on since before the 2006 elections, in which Democrats promised that they had the better solutions for energy (and the price of gas has essentially doubled since Nancy Pelosi promised her “commonsense plan.”) Democrats have ever since been lining up to support a new federal windfall profits tax, with the aim of redistributing profits from “greedy” oil companies.

But, as Jonathon Williams, writing in The Los Angeles Times, pointed out:

lawmakers could benefit from a history lesson. The last time this country experimented with such a tax was the Crude Oil Windfall Profit Tax Act of 1980. According to a 1990 Congressional Research Service study, the tax depressed the domestic oil industry, increased foreign imports and raised only a tiny fraction of the revenue forecasted. It stunted domestic production of oil by 3% to 6% and created a surge in foreign imports, from 8% to 16%.

As for that “tiny fraction of the revenue forecasted” figure, the windfall profit tax returned only $40 billion of the $175 billion that had been projected.

Surprise, surprise. When you tax something, you get less of it, and you drive up the cost. It boggles the mind that Democrats are pathologically incapable of understanding what is the most blatently obvious principle of economics. But they can’t.

Many have defined insanity as doing the same thing and expecting different results. By that bar, Democrats should be sitting straightjacketed in rubber rooms.

Jimmy’s Carter’s failed energy policy was part of the reason for the 20% prime interest rate that consumed our economy like a cancer.

By taxing American oil companies, they produced less oil, reducing the supply and driving up the cost. At the same time, the reduction in domestic production created a corresponding increased dependence on foreign oil.

And, as Jonathon Williams also points out, the policy of windfall profits forced a major U.S. industry, and a major U.S. employer, into a depressed condition that it took years to overcome. You might hate big oil, but damaging the industry is tantamount to cutting off your own nose to spite your face.

The Jimmy Carter presidency was a catastrophic disaster in foreign policy, domestic policy, and energy policy. The last thing this country needs is the Second Coming of a failed presidency.

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Democrats Deceitful Pandering at Big Oil Hearings

May 22, 2008

Today we saw something we’ve seen four times now in something like 16 months: Democrats dragged big oil CEOs to a “hearing” in which pandering Democrats did all the talking and no “hearing” at all.

And while these eager little media-pigs sought airtime and headlines, absolutely nothing was done to actually solve our energy problems – yet again. Remember Nancy Pelosi promising that if Democrats were elected, they would reduce the price of gasoline back in April of 2006?

Vote demagogue. Vote Democrat.

Any honest hearing would have focused on the word “supply.” You see, economists talk about something that Democrats don’t seem to comprehend: the law (that’s right – LAW!) of supply and demand. If you don’t have enough supply of an item that is in demand, lo and behold the price goes up, and up, and up. What economists see as a routine market phenomenon, Democrats see as a mystery that somehow evokes a massive conspiracy.

But, no, the focus was on profits. Oil company profits, that is. The oil companies – according to Democrats – are doing something that no decent corporation should seek to do: they are earning money.

Contrary to the demagoguing of Democrats, the profits made by oil companies are really not excessive. For example, Exxon’s profit margins are only 10.7%. Profit margins at Microsoft, on the other hand, are 26%.

We routinely get “news” stories on massive oil company profits, but what we never seem to hear is the story of massive taxation upon the oil companies. The plain reality is that the federal goverment gets twice the “profit” from a gallon of gas as the oil companies, on average. And when you factor in ALL government taxes, government makes nearly FIVE TIMES as much as do the oil companies.

Dr. Mark J. Perry, an economist at the Univeristy of Michigan, notes that:

After crude oil costs, gasoline taxes are the second largest contributor to the price paid at the pump. Together Federal and State excise taxes on fuel account for an average cost of approximately 62 cents per gallon. That’s a combined tax of about 20% per gallon of gas.

The federal tax per gallon is 18.4 cents per gallon, see the history of federal gasoline taxes here, and the state tax per gallon varies by state, see the complete list of state gasoline taxes here.

Average profit per gallon of gas for oil companies: 10 cents according to the EIA.

Perry concludes by citing a question posed by Thomas Sowell, that if Democrats really consider oil companies’ profits unconscionable, what do they have to say about the taxes they impose, which add a far greater burden to the costs paid by American drivers than those “obscene” oil company profits?

A little more documentation:

An October, 2005 Tax Foundation analysis, “State and Federal Treasuries ‘Profit’ More from Gasoline Sales than U.S. Oil Industry,” reported: “Federal and state taxes on gasoline production and imports have been climbing steadily since the late 1970s and now total roughly $58.4 billion. Due in part to substantial hikes in the federal gasoline excise tax in 1983, 1990, and 1993, annual tax revenues have continued to grow. Since 1977, governments collected more than $1.34 trillion, after adjusting for inflation, in gasoline tax revenues — more than twice the amount of domestic profits earned by major U.S. oil companies during the same period.”

A September Tax Foundation analysis, “Local, State and Federal Gas Taxes Consume 45.9 Cents Per Gallon on Average,” cited the 18.4 cents per gallon federal gas tax and provided a state-by-state “effective gasoline taxes per gallon” map. Notably, the most liberal states with the most demagogic politicians on the Big Oil profits topic, have the highest taxes. Federal and state taxes, for instance, top 60 cents per gallon in New York. The American Petroleum Institute has posted a PDF, “State Motor Fuel Excise Tax Rates,” with very detailed state-by-state data.

Let’s say a little more about the taxes that oil companies pay.

A study reveals that just one corporation (Exxon Mobil) pays as much in taxes ($27 billion) annually as the entire bottom 50% of individual taxpayers (65,000,000 people!). Moreover, the tax rate for the bottom 50% of taxpayers is only 3% of adjusted gross income ($27.4 billion in income / $922 billion paid in taxes), and the tax rate for Exxon was 41% in 2006 ($67.4 billion in taxable income, $27.9 billion in taxes).

That’s right: the average tax rate of the largest oil companies such as Exxon is 41%. And over the last three years, Exxon Mobil has paid an average of $27 BILLION EVERY YEAR in taxes.

Do you start to get it? They are making huge profits in terms of absolute dollars because their operation is so incredibly massive. However, in terms of their profit margins, they are well within the norm. And they are also paying taxes hand over fist, which increases the cost of gasoline far more than does their reasonable profit.

If big oil’s profitability were artifically restricted, what do you think would happen to investment? Or let me put it to you this way: would you rather invest in a corporation that yielded a 10% profit, or a 5% profit?

This is an IQ test, but unfortunately, congressional Democrats demonstrate themselves to be very, very stupid people.

They seem to think that gutting big oil’s profitability would somehow be good for the energy industry. They seem to think that those investment dollars would just somehow continue to pour in. Apparently, they think investors are as idiotic as they are. But they aren’t. They live in the real world, and they invest their money where the highest profits are. As investment money shriveled up, so also would investment in future energy resources and technologies. And gas would become more expensive.

Democrats – including both Democratic presidential hopefuls – have been threatening to levy a “windfall profits” tax to punish oil companies (because, apparently 41% is just too darn little). These demagogues shrilly yell in outrage over the oil companies’ modest profit, but conveniently and hypocritically ignore the burden that THEY are imposing on drivers.

Is there any reason to think that this totally irrational sounding, counter-intuitive approach would work? History proves it’s every bit as stupid as it sounds.

According to the Congressional Research Service (CRS), is that the 1980s windfall profits tax depressed the domestic production and extraction industry and furthered our dependence on foreign sources of oil.

As Jonathon Williams puts it, “This nation’s experiment with windfall profits taxes in the 1980s proved to be economically devastating. When it was last tried, the windfall profits tax failed to raise even a fraction of the revenue forecasted and crippled the production of the domestic oil industry. But as they say, those that fail to learn from history are doomed to repeat it.”

Having said all of this, I am not attempting to “defend” big oil companies. They are corporations, after all, and almost by definition engage in a rather amoral pursuit of profits by exploiting every avenue they can. Oil companies aren’t any better than any other corporation; and given their huge size, they are quite probably worse than average.

What I am saying is that the truly “unconscionable” figures in our energy mess are congressional Democrats, not oil companies that would do far more to solve our problems if only liberals would stop deceitfully imposing one costly burden after another upon them, and then blaming them for the resulting high cost of gas. And what I’m saying is that we need big oil far more than we need Democrats.

Unless you don’t mind riding your bike everywhere you go from now on, that is.