Monday, May 5, 2008

Oil and Politics just don't Mix!

The year was 1980 and Congress passed and Carter signed a "windfall" profits tax on the oil companies and what happened? Well the Congressional Research Service found in a 1990 analysis that the tax reduced domestic oil production by 3% to 6% and increased our imports from OPEC by 8% to 16%. Now Barack Obama wants to do it all over again. Just like at church, he must have missed that day in Eco-101, that said when you tax something you get less of it.

In a very well written editorial from the WSJ on May 3rd, 2008, Review & Outlook section, the case for how utterly ignorant and political the fight over which candidate for president can stick it to the big oil companies, this "Windfall Profits for Dummies" piece is sharp and lays it out so anyone can see that taxing only begets less. (Oil that is)

McCain and Clinton want to have a tax holiday for gas at the pump. This would save approximately 18.4 cents per gallon. A nice start but not a solution. And when you mix politics into the holiday plans, it sounds like a vacation that Chevy Chase would have thought of. You have McCain saying that the general revenue will pick up the slack for the lost taxes. I'll go along with that, but it still doesn't give anyone incentive to pump more oil. Clinton wants to have the oil companies pay for the taxes we wouldn't collect. But the government already takes 35% right off the top to begin with, then she wants them to pay more? Obama doesn't like the holiday idea, but just wants the oil companies to pay for one anyway.

When we hear these incredible profit numbers, $10, $20 Billion in profits for a quarter, the average citizen sees that and thinks it's some how unfair. But when you take in to account the amount of sales that the oil companies take in every day, every quarter, every year, the profit margin, or the amount of money earned per dollar invested in the company, is about 8.3%, while the average for all companies is 7.8%. And this is a BOOM year for oil. If you look at the profits as a margin, oil is doing much worse than "Big Corn" right now. And god, don't get me started down that road.

Here's the economic problem with all of this. What is the goal for these actions, to lower the price at the pump, to increase oil supply, to increase exploration, energy "independence", ... WHAT? The editorial states the dilemma perfectly. "This tiff over gas and oil taxes only highlights the intellectual policy confusion – or perhaps we should say cynicism – of our politicians. They want lower prices but don't want more production to increase supply. They want oil "independence" but they've declared off limits most of the big sources of domestic oil that could replace foreign imports. They want Americans to use less oil to reduce greenhouse gases but they protest higher oil prices that reduce demand. They want more oil company investment but they want to confiscate the profits from that investment. And these folks want to be President?"

At close to $120 a barrel isn't now the time to start drilling. We know where so much oil is, the Gulf of Mexico, off California's coast, ANWR! We need refineries in every state, so storms can't interrupt supply, we need nuclear power and even more, cleaner coal plants. (we are the Saudia Arabia of coal in the world) As Captain Kirk would say, " Scotty, we need more Power", and boy do we ever. We can't "Reduce, Reuse and Recycle" our way out of our energy crisis, we have to produce our way out of it. I know the Democrats will not want to drill, but even John McCain says that he'd no more drill in the Grand Cannon than drill in ANWR! So I guess the continental shelves are off limits too Senator? God, where's Scotty when we need him?

1 comment:

BAHL said...

Forget the burden Big Oil has placed on my family, we are being crushed under the wrath of Big Milk.

And any political blog article referencing Mr. Montgomery Scott, gets top marks.

Aye Sir