Windfall tax increases

On Friday, I got this e-mail in my box but since it was the end of the week and I had my posts for the weekend already planned, I decided to wait until this evening to address the issue. Besides, it was too nice of a weekend to think a whole lot about politics.

Today, Barack Obama announced that he will impose a windfall profits tax on oil companies if elected president. His proposal comes at a time when Maryland’s working families are paying more for gas than ever before. Hillary Clinton has also announced support for a windfall profits tax. Maryland Republican Party Chairman James Pelura reacted with disbelief at Barack Obama’s proposal.

“The latest tax hike plans from both Barack Obama and Hillary Clinton are just more of the same flawed fiscal policies that are making it harder for Maryland’s families to balance their checkbooks every month,” charged Chairman Pelura. “It also shows a troubling lack of understanding about how our supply and demand economy works.”

“Raising taxes on the oil companies will just mean higher prices at the pump. Worse, it will hinder exploration for new sources of oil as well as the search for alternatives to burning fossil fuels,” Pelura said. “Since taking control of Congress, the Democrats have consistently advocated tax increases as the solution to every problem under the sun. And like Governor Martin O’Malley here in Maryland, Barack Obama and Hillary Clinton will not deviate from that script.”

“The two Democratic candidates’ latest proposals underscore what is at stake in this election. Taxpayers desperately need a break and should keep more of the money they earn.”

While I’m not a huge fan of that bit of pandering to “working familes” by any stretch of the imagination, the point remains that both Obama and Clinton continue the tired old liberal idea of punishing achievers, just like Martin O’Malley did here in Maryland with the new millionaires’ tax that replaced the sales tax on computer services.

Despite what you may read in the mainstream media, American oil companies are not the enemy because they do not set the price of the raw product – the market does. While many factors impact the price of oil, three of them stick out in my mind as being the main culprits behind $3.50 per gallon gas:

  • Much of the world’s oil production is regulated by a cartel that we are not a member of, OPEC.
  • The dollar is extremely weak against a number of major currencies and because the price of oil is set in dollars that are worth less than other monetary units, it takes more of them to gain an equal purchasing power.
  • With little incentive to drill and explore domestically because many prime areas are off limits to production, oil companies have no choice but to pay the price for the product and pass on that cost to consumers. Remember, these companies are trying to make a profit because it’s what their shareholders (including me) demand, a good return on investment.

I also want to address the idea of a gas tax holiday that John McCain proposed (and was echoed by Congressional candidate Andy Harris.) The big outcry that Democrats make against this idea is that it will take away funds for highway maintenance. While that may be true to some extent, I think there’s a way to cut highway costs as well because if memory serves me, highway construction is covered under prevailing wage legislation and that so-called prevailing wage is simply what Big Labor says it is – the rate has little to do with the actual job market. Billions could be saved because the cost of labor is a huge part of the price of construction.

And while maybe it will only save pennies a day to the average taxpayer (as Barack Obama and his cronies whined), to those in the transportation industry, particularly smaller independent truckers, a tax holiday could mean the difference between staying afloat or going bankrupt.

But I think this would only be effective at the federal level. I’m not quite as sure Senator Harris’s idea of a gas tax holiday for Maryland would be quite as effective because retailers could stop collecting the full 23.5 -24.25 cent tax (depending on fuel type) but only drop prices to, say, a 10 or 15 cent difference between states and pocket the rest as a little extra profit. Of course, if adjoining states did the same then the full effect may be felt, which makes the federal idea more sensible.

On the whole, while I’m not really pleased about paying $40 for a tank of gas, the folks that are to blame are not the ones who would be the target of a windfall profits tax but the ones who place onerous restrictions on drilling and refining oil in this country. Perhaps our pump prices would have never made it this high if more oil came from our own native sources – but it’s not too late to start extracting our supply to serve future generations, at least until a better and no more costly alternative is found.

In the meantime, since a lot of us are doing without because of high energy costs perhaps it’s time the federal government felt the pain like we do and actually prioritize its spending to allow less need for revenue such as the gasoline tax.

Author: Michael

It's me from my laptop computer.

3 thoughts on “Windfall tax increases”

  1. I don’t agree with the windfall profits tax, and I don’t agree with the gas tax holiday. Andy Harris’ version of the holiday was an obvious political ploy, since the Maryland State House is closed for repairs and they couldn’t have had a special session even if they wanted to.

    The higher price of gas has caused a decrease in demand, which will ultimately help the price return to a lower level. A gas tax holiday would create an artificial lowering of the price and result in an increase in demand. We need to let the natural cycles of the market work this out.

    The largest portion of our imported oil comes from Canada and Mexico, so blaming the problems on OPEC is a decades old argument. Supply has hit a plateau and global demand is increasing. Iraq is still producing oil at levels below the pre-war numbers. Oil refineries are operating at 90% of capacity instead of the historical average of 95%. There are so many factors affecting the current market that any one solution can not help. It will take years of efficiency improvements and new supply to lower the cost.

    The recent news about airlines lowering plane speeds to save on fuel costs is just one example of the many areas that efficiencies can have a huge impact. Maybe it’s time to go back to a nationwide 55 MPH speed limit.

    I think it was your friend over at Gunpowder Chronicle who discussed Alaskan oil recently. He suggested that a lot of Alaskan oil was exported because it is so difficult to transport it to the lower 48. I haven’t followed up with any research on this, but if that is true, it hurts your ANWR argument.

  2. The government does a lot to drive up the cost of gas. As you mention, its restrictions on domestic exploration restrict supply. Its ethanol mandates raise prices. Its mandates to use different blends of gasoline to meet clean air requirements drive up the cost (just look at how much gas costs on the Western Shore during the summer compared to here — that’s because they have to use a different blend of gas than we do). The clean air mandates also mean that when there is a shortage in supply in one area of the country it’s hard to shift gas from the other areas, since the affected area is likely to have a different belnd of gas. That, too, drives up cost. And, of course, there is the huge bite that federal and state taxes take out of every gallon.

    If politicians are looking for the reason gas costs so much, they need to re-examine their support for these policies. The gas tax holiday idea is OK, I guess, but it’s just a gimmick.

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