Three Senate Democrats angry about the high price of gasoline propose to raise taxes on the firms that produce it. No, it does not make any sense to us, either. For Democrats, expensive gas is just the price of scoring a moral victory over Big Oil, and American consumers will be expected to pay any price and bear any burden that Harry Reid & Co. inflict upon them.
The “Close Big Oil Tax Loopholes Act” is a minotaur’s labyrinth of economic illiteracy, with Democratic senators Robert Menendez (N.J.), Sherrod Brown (Ohio), and Claire McCaskill (Mo.) lurking at the center of it. This A-team of financial sophisticates has taken a hard look at rising gasoline prices and concluded that the most reasonable course of action is to increase the cost of producing oil by “closing tax loopholes” for the five biggest oil companies. Why the five biggest? Why not four or six? Why not all oil companies? Because this is not a bill about tax reform, but a bill about Democrats’ bitterness and impotency in the face of unpleasant economic realities.
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The first thing you should know about these oil-company loopholes is that the main items under discussion are not exactly oil-company loopholes. In 2004, Congress enacted an ill-considered tax break for manufacturing companies — one of many harebrained efforts to improve the U.S. economy by empowering politicians to hand out favors to their friends — and the definition of manufacturer was written in such a way as to cover just about any firm with investments in physical capital: Starbucks qualifies for manufacturers’ benefits under the relevant section of the law, known as Section 199. If you hire a guy to build a diving board for your home swimming pool, he’s as much a manufacturer as General Motors.
Which is to say, it is a stupid law, but it is not a law that grants special privileges to oil companies. Congress would be wise to repeal Section 199 in its entirety. In truth, our corporate tax code is a Hieronymus Bosch nightmare of political favoritism, market distortion, and rent-seeking representing the worst aspects of the unsavory nexus between Big Business and Big Government. For that matter, so is the individual tax code, and both should be reformed in roughly the same way: by eliminating exemptions, deductions, and hamfisted attempts at imposing economic policy through the tax regime. Such an approach to reform would, intelligently applied, enable us to reduce tax rates without reducing tax revenue, a very happy result indeed for a great many taxpayers.
Don’t count on that happening. The Democrats would rather use the tax code as an enemies list, and they’re already fighting about what to do with the money they foresee expropriating from oil producers and, indirectly, from gasoline consumers. Some want to use the funds to pretend to reduce the deficit. Sen. Max Baucus (D., Mont.), getting in touch with his inner Barack Obama, has his eyes on the money, too, with big plans to use it to subsidize politically favored automobile manufacturers and enterprises engaged in the alternative-fuels business — as though one ethanol boondoggle and one GM bailout were not enough of a national embarrassment.
Consumer gasoline prices are highly responsive to oil producers’ costs. In a meaningful sense, oil companies are not so much taxpayers as tax-collectors. Singling oil companies out for tax-code punishment may give Democrats a political tingle, but it’s drivers and consumers (How do you think your groceries get to the store?) who will pay the freight.
Along with Section 199, there are other aspects of the corporate tax code that cry out for revision. Rules covering operating expenses and investment costs need to be made consistent. Above all, the treatment of foreign income needs to be updated: The United States, alone among the developed world, makes a tax claim on income earned beyond its legal jurisdiction, placing American companies at a great disadvantage — and leaving trillions of dollars of potentially productive investment capital stranded offshore. Investment analysts took note this week of Microsoft’s purchase of the Internet-telephony firm Skype for $8.5 billion. Microsoft, like many U.S. firms, has a lot of international earnings that it does not wish to pay a 35 percent penalty on for the privilege of returning them to the United States, and it was from these exiled funds that it purchased Skype, which is incorporated not in the United States but in Luxembourg. Being incorporated in the United States would have cost Skype billions of dollars on the deal, a fact not lost on venture capitalists and start-up entrepreneurs — the people who create high-paying jobs, along with goods and services in demand in the real economy.
That’s just one example of how bad tax law is costing the United States jobs, growth, investment — and tax revenue, too. We should simply simplify — a fact that ought to be obvious enough even for these simple senators.
If the GOP were truly interested in reducing the price of gas immediately and at the same time countering Obama, they would introduce legislation to repeal the requirement for boutique fuels.
Of course, a large part of the cost increase is due to the weak dollar, will anyone do anything about that? It isn't a tax issue, it's a spending/debt issue. Don't you love how Congress and their minions whine about $4 a gallon gas and sip $4 lattes without a second thought. Take that credit away from Starbucks and they'd really howl!
Very simple solution to keep the Dem's in check here. The Energy companies and distributors/retailers simply need to stop withholding the federal tax from each gallon of gasoline that's sold. Keep the state portion intact, but let the fed's go out to the individual drivers and try to collect these taxes. I don't see anywhere in tax law where the Oil Companies are being reimbursed for serving as tax collectors for Uncle Sam. And...this would create the fight of all fights between the Federal and State Gov't about who's got what rights with respect to taxes, how those taxes are collected, and how those taxes are spent.
"In a meaningful sense, oil companies are not so much taxpayers as tax-collectors."
Every company is a tax collector. This isn't anything unique to oil companies. In fact, all Americans are taxpayers first, productive employees second.
"Anyone here know how the oil depletion allowance works?"
Oil depletion is byzantine to the point that none of my tax professors even touched it. The only people who are going to know how oil depletion (or mineral rights, for that matter) is going to work are in the oil companies and the IRS already. To reduce it simplistically, it is supposed to work in much the same vein as depreciation of a capital asset. "Supposed to" being the key words.
In 06 the people of Ohio turned their backs on Senator Mike DeWine. He was a RINO's RINO and the conservatives in the state refused to support him. I voted for him, but only because the alternative was Sherrod Brown.
and that's why there's a tea party. If the only choice we tax payers have is between a spend thrift and spend thrift who is also none too bright, we're basically facing disaster.
I am embarrassed to state that Sherrod Brown is one of my senators.
the tea party therefore is born from that frustration. It has, as I see it, two important roles: First to bring the elected Republicans closer to the right, next to challenge those Republicans who aren't getting it in primaries.
Now I have to live with the sad fact that because DeWine was inept as a republican senator, Ohio has to be shamed by the only other alternative available. Something is really wrong with this picture.
Of course the Democrats want to tax the oil companies--the oil companies are making money!
You have to remember the entering argument of the Democrats (and some of the Republicans)--all money belongs to them. You are just keeping some of their money until they figure out how to get it from you.
This is necessary because you, as a commoner, are not mentally equipped to manage your own finances, much less your entire life.
The annointed Liberals and members of our ruling class will happily take that responsibility out of your hands, since they know so much better how to allocate your assets.
The tax code hasn't been about revenue collection for many, many years. It is a tool of government control--a tool that looks a lot like a sledgehammer.
The fact that high gas prices will drive people into cities, as well as forcing them to buy smaller, less safe cars is only a bonus.
So let me see if understand NR's argument: Either you give away my hard-earned money to subsidize the most profitable companeis in the world (i.e. the oil industry),
or else you must eliminate all subsidies and it's Democrats' fault it won't happen. Now we might ask
1. Who controlled Congress in 2004 when the subsidies were passed?
2. Does the GOP support NR's crusade to eliminate these subsidies?
3. Why make the perfect the enemy of the good? Why borrow money from China so we can add even more lard to Exxon's fat profits when we are soaking in deficits?
4. If oil companies are mere tax collectors, how come they used their tax breaks to finance share buybacks? Isn't the idea that consumers get their taxes back? Why not just tax the oil companies give the money to Americans directly?
"Consumer gasoline prices are highly responsive to oil producers’ costs."
Indeed. In fact, the typical gas station profit on a gallon of gas is around 1% of sale price. That's right: 4 or 5 cents on a $4.50 gallon of gas. The price of gas is virtually nothing but the aggregated costs of the elements in the production and distribution chain.
If you were wondering why so many gas stations have attached convenience stores, that's a great part of the reason.
1. The oil depletion allowance is not available to the five (or four or six) largest oil companies and hasn't been since 1974. The $4 billion figure tossed about by the Obama regime is primarily taken by independent oil producers to encourage them to continue pumping at wells that are no longer economically viable. You can say the industry should not be so subsidized, and that's fine, but don't think its going into "big oil's" pockets and don't think it will do anything to increase domestic oil porduction.
2. The returns on profits generated by oil companies' profits are mediocre at best as compared to other industires. In other words, the return on a dollar invested in Micorsoft's stock will yield a better return than a dollar invested in ExxonMobil's stock. There are some temporary variations as prices sometimes swing wildly in the petroleum market, but that has historically always been true. Feel free to look it up. So those "fat profits" that have been in the imaginations of Democrats since the Carter era only appear large because of the shear magnitude of the oil companies invested base (A base that includes many a state pension fund and many mutual funds that inhabit many Americans' IRAs & 401(k)s).
3. The return on invested capital is dictated by the market (see the above base definition). The oil industry cannot eat the cost of increased taxation anymore than any other capital intensive business can. It will pass on those costs to consumers. All taxes are, in the end, paid for by the American public. Corporations do not pay taxes - period. They simply collect it from consumers in higher prices and pass it on to the government.
Do you suppose obama will use the $4B subsidy taken from American oil companies to provide Brazil with their subsidy so we can "become their best customer." If only one of the oil execs being grilled by the democrat goons would present that issue. I believe it would SHUT THEM UP!
ArielD. Please explain how money that is taxed or not taxed from a company became your "hard earned money"? Therein lies the bias based on the idiotic supposition that all privately held capital belongs to the government- or, in your particular case, to you personally.
To your other point: in case you hadn't noticed, NR is a Conservative - not a Republican magazine. It criticizes legislation based on the merits, without regard to which party was responsible.
"Allowing a company, or a person, to keep some of their own money, is not a subsidy."
By this logic, in a hypothetical society where the top 1% pays no taxes but everyone else does, no one is subsidized. The top 1% are not subsidized by the tax payers that provide for the police, army, infratructure, R&D, food safety border security, financial bailouts, etc etc. Nope, no subsidies here! So if GE pays no taxes and shareholders pay no dividend or capital appreciation, but I do pay taxes on my labor wages, no subsidy here! Just people keeping their hard-earned money.
ArielD: That analogy of yours is so bad that I hardly know where to begin.
You start by hewing to the standard liberal line that not being taxed at a 100% is a subsidy. Then you claim that if they are taxed at 0%, they are being subsidized.
No middle ground for you is there.
I suspect that a tax on the top 1% of about 1% would be sufficient to cover their share of all the things that you mentioned.
Now if you want to try to talk some sense, then try again.
@ArielD: Did you read the article or just paste in some boiler plate.
Read carefully: "Which is to say, it is a stupid law, but it is not a law that grants special privileges to oil companies. Congress would be wise to repeal Section 199 in its entirety."
Quick quiz: What part of "it's a stupid law and instead of getting rid of it for just companies A, B, & C we should just get rid of it period"
equals
"So let me see if understand NR's argument: Either you give away my hard-earned money to subsidize the most profitable companeis in the world (i.e. the oil industry),
or else you must eliminate all subsidies and it's Democrats' fault it won't happen."
@ArielD: "By this logic, in a hypothetical society where the top 1% pays no taxes but everyone else does, no one is subsidized. The top 1% are not subsidized by the tax payers that provide for the police, army, infrastructure, R&D, food safety border security, financial bailouts, etc etc. Nope, no subsidies here! "
Right, so I supposed you'll now rail against a real society where the top 50% are taxed and subsidize the bottom 50%. Or should those who do subsidize those who don't in your view?
