Oil and Tax

The high price of gas has politicians in a tizzy, perhaps more so than ordinary consumers. Sure, the recent price increases are unpleasant, but I haven’t seen riots in the street because of it. Instead, we hear about the demise of the Hummer, not a bad thing. High oil prices also hurt in indirect ways, such as higher fertilizer and freight costs and pricier airline tickets, but again, it seems like the economy is absorbing the shock so far. We should consider that the price of gas is double, over $8 a gallon in Europe. That seems to be the point at which people, or at least truckers, riot in the streets.

Although it hurts my wallet, I am hopeful that the high price of fuel will continue and eventually strain the economy severely enough that the government is forced to develop a rational energy policy.

The recent Democratically sponsored bill to increase taxes on US oil companies failed to reach the senate floor when it was blocked by Republicans. The bill would have eliminated $17 billion in tax breaks for oil companies who are reporting historically high profits in the trillions of dollars. It seems reasonable on the face of it that they could afford to pay the true costs of production.

The bill also threatened further tax punishment if the oil companies did not invest in new energy sources soon. That provision seems less obvious, as we know that honey works better than vinegar, but again, given that companies are awash in money right now, it could possibly work.

However, if I were a senator, even a Democratic senator, I think I would have voted with the Republicans on this one. The bill was a simple-minded, short term, knee-jerk response to perceived voter unhappiness over gasoline costs, even though it is psychologically satisfying to vilify those fat-cat oil companies. It also wouldn’t hurt in the fall elections to say “we did something for you,” (or tried to, at least).

The proposed senate legislation did nothing to address fundamental issues, such as inadequate refining capacity, unwillingness to pressure the auto industry to raise fuel economy standards, fund alternative energy sources, develop a nationwide plan for oil conservation, and so on. How about a tax on plastic and synthetic fibers?

Closing tax loopholes for the oil companies is a good idea in principle, but it needs to be part of a comprehensive energy policy. For example, would the revenue from the oil company tax go to fund clean coal technology or public transportation? No such ideas were mooted. And on the down side, taxing oil companies right now might inhibit construction of new refining capacity and at the margins, diminish exploration and production among the smaller, hi-tech companies, leading to higher gasoline prices.

Of course oil companies are among the largest political donors in the country, especially on the Republican side, so corruption no doubt played a role in the vote’s outcome. Still, I think the Republicans were on the right side of this vote in terms of long term strategy. The senate bill seemed more of a political stunt than a well though-out solution to basic problems. The price at the gas pump is only a symptom of a much larger energy problem.

I wonder, though, if I could have voted with the Republicans on this one, if I were a Democratic senator. Would it be career-limiting? Would Harry Reid send over someone to break my legs? I wonder how it works when your own party promotes a hare-brained scheme.