Free Markets, Free People

Daily Archives: March 26, 2009


Proposed Taxes On Oil Producers Will Be Paid At The Pump

This is such a basic lesson I’m surprised it has to be repeated so often.  

The background:

Under pressure to narrow projected deficits, President Barack Obama’s 2010 budget proposal calls for raising more than $31 billion over the next decade by eliminating the oil and gas industry’s eligibility for various tax breaks.

When you’re thowing around 3.6 trillion dollar figures for budgets, someone is going to ask, “how are you going to pay for it?” A 3.6 trillion dollar budget certainly doesn’t answer, “by cutting spending” does it? So new sources of revenue have to be found. But in a consumer society who is the ultimate source of all revenue? If you answered, “the consumer” you get a gold star.

So revenue is the purported reason for the focus on oil companies. Additionally, they’re easy to demonize which makes for easy political pickings. That seems to be the modus operandi of this administration.
changing-hands-1
The propsoal:

The plan would slap companies with a new excise tax on production in the Gulf of Mexico worth $5.3 billion between 2010 and 2019, and repeal the industry’s eligibility for a manufacturing tax credit worth $13.3 billion in that period.

In an era in which the word “trillions” is uttered with abandonment, billions suddenly don’t seem like much do they? Unless of course you’re a middle or lower income family. Then trillions and billions are meaningless. It’s how far can you stretch the thousands of dollars you earn each year?

Well that $13 a week tax cut you’re contemplating will quickly disappear at the gas pump if Congress and the adminstration get their way. Fuel prices will rise at the pump and may rise rather dramatically. That’s because that approximately 20 billion you see above will most likely morph into about 400 billion cost to the oil companies during that period:

The industry says the final cost of Mr. Obama’s proposals on petroleum production could top $400 billion, once his plan to put a price on greenhouse-gas emissions is factored in.

The lie:

The Obama administration has generally justified its proposals by arguing that taxpayers deserve a better deal.

Yeah, I know, “lie” is a strong word. I’ve always considered it to be the knowing telling of a falsehood. And that’s precisely what this “justification” is. The “taxpayer” being talked about isn’t you in this scenario. It’s the government. You will be paying the passed through tax at the pump which the oil companies will then send to DC.209546302_54daa93f9b

For the seeming millionth time, corporations don’t pay taxes, they collect them and pass them on. Individuals pay taxes.

Last but not least – Raising taxes in recessionary times (not matter how indirect) is a recipe for economic disaster. Additionally such taxes in recessionary times may have the effect of driving jobs offshore where taxes and restrictions are less onerous and seeing oil companies produce less oil and natural gas domestically in a time when there is a growing and increasingly worrisome energy gap.

Not a very bright policy.

~McQ


If The Alternative Energy Types Think It Will Be Easy …

It won’t be. There’s nothing “sacred” about wind and solar, certainly nothing which is going to see environmentalists back off of their opposition to anything with despoils the vision they hold of how mother earth should be:

As David Myers scans the rocky slopes of this desert canyon, looking vainly past clumps of brittlebush for bighorn sheep, he imagines an enemy advancing across the crags.

That specter is of an army of mirrors, generators and transmission towers transforming Mojave Desert vistas like this one. While Whitewater Canyon is privately owned and protected, others that Mr. Myers, as head of the Wildlands Conservancy, has fought to preserve are not.

To his chagrin, some of Mr. Myers’s fellow environmentalists are helping power companies pinpoint the best sites for solar-power technology. The goal of his former allies is to combat climate change by harnessing the desert’s solar-rich terrain, reducing the region’s reliance on carbon-emitting fuels.

Mr. Myers is indignant. “How can you say you’re going to blade off hundreds of thousands of acres of earth to preserve the Earth?” he said.

As I’ve said before, if you think that these groups are going to let anyone carpet the Mojave Desert with solar panels and endanger its eco system, you haven’t been paying attention to what has been going on here for the last 50 years.

Terry Frewin, a local Sierra Club representative, said he had tough questions for state regulators. “Deserts don’t need to be sacrificed so that people in L.A. can keep heating their swimming pools,” Mr. Frewin said.

But that’s precisely what it will take for solar to make any appreciable difference, given the technology available today. The ironic thing is the movement to plus up solar is being driven by a Democratic administration and putting it into direct conflict with one of its more loyal constituencies.

It is also causing dissent within environmental organizations as well:

“It’s not enough to say no to things anymore,” said Carl Zichella, a Sierra Club expert on renewable power. “We have to say yes to the right thing.”

We’ll see who wins in the end and what the eventual political cost will be – but you can rest assured, there’ll be nothing easy about implementing solar and wind if environmentalists have any say.

~McQ


Federal Drug Warriors Double Down On The Drug War (UPDATE)

New administration, same lame approach:

U.S. Secretary of State Hillary Rodham Clinton on Wednesday pledged to stand “shoulder to shoulder” with Mexico in its violent struggle against drug cartels, and acknowledged the U.S. shares blame because of its demand for drugs and supply of weapons.

She said the United States shares responsibility with Mexico for dealing with violence now spilling across the border and promised cooperation to improve security on both sides.

And it’s your fault:

“I feel very strongly we have a co-responsibility,” Clinton told reporters, adding: “Our insatiable demand for illegal drugs fuels the drug trade. Our inability to prevent weapons from being illegally smuggled across the border to arm these criminals causes the deaths of police officers, soldiers and civilians.”

Of course, if we had control of our borders and drugs weren’t “illegal”, we probably wouldn’t be seeing the slaughter on the border now, would we?

Look, I know, as does everyone who reads this blog, that the sudden realization that it is the prohibition that drives all of this violence and not the demand, isn’t going to suddenly dawn on the politicians. The lessons of 1920′s prohibition have apparently been lost on them. The lawlessness, the gun violence, the flouting of the law by a majority of the population – all were essentially eliminated with the repeal of the 18th Amendment.

I’m not going to make the argument that drugs are good for you, harmless or something I’d want my grandkids to do. But I understand, despite all of that, that our approach – prohibition – is an abject failure and the war on the border is simply a manifestation of that failure.

The key to winning this war is to take the profit motive for criminals out of the equation. For most observers that seems self-evident. No profit, no war. No war, no need for guns and killing.
drugwar1
Yet governments seem to resist that obvious point. Instead they wage “war” on the producers, suppliers and users. But the profits, propped up by the government prohibition, are so obscene that the replacement of producers and suppliers taken out of the “business” is almost instant. And the size of the user population is such that only low single digit percentages of them are ever caught and prosecuted.  It is, relatively speaking, a low risk business with very high rewards for the producers.

In reality, a criminal business is motivated by the very same things as is a legal business. It responds to the same sorts of market incentives as a legal business. The market, however, isn’t created by natural demand and regulated by competition. Instead, the market is one created by government prohibition. No prohibition, no “illegal” demand. No illegal demand, no possibility of the obscene profits enjoyed and no real appeal to a criminal enterprise or syndicate.

So calling for more of the same in terms of addressing this problem seems insane. As long as the prohibition remains in place the profit motive for the criminal gangs remains in place as well. And as long as the profits are large enough to more than offset the losses incurred in the distribution process (and the fight with governments and police), they will continue in their “business” until such a profit motive disappears.  And as long as the price of drugs remains reasonably low and readily available (and the enjoyment remains high), and the population wanting them remains large, demand will remain pretty constant.

As has been demonstrated for decades, governmental efforts to stem both supply and demand through prohibition has been a pitiful failure. Yet here we are, getting ready to double down on this horribly failed policy.

In reality, this is again a manifestation of the nanny state. It is a determination by government that something it has decided is detrimental to individuals should be denied them. Instead of approaching the issue as it did with alcohol, our government has eschewed the lessons learned and the success of that effort in favor of the approach it is now taking.

To most rational people such an approach seems absurdly irrational. Yet there is no serious debate within government circles about the failure of the present approach or discussion of alternatives. And that’s in the face of evidence that drugs are now being used to finance terror organizations.

Something has got to change. And it needs to change quickly, or what you see on the border now will only grow worse. We’ve talked about how governments can distort markets. What you see now is a classic example of the results of such a distortion.

UPDATE: New York is trying something different in terms of combatting drugs.  Although still not signed into law, the Governor and legislature have agreed to legislation which would dismantle much of the ’70s era “mandatory sentencing” laws and put more of an emphasis on treatment:

The deal would repeal many of the mandatory minimum prison sentences now in place for lower-level drug felons, giving judges the authority to send first-time nonviolent offenders to treatment instead of prison.

The plan would also expand drug treatment programs and widen the reach of drug courts at a cost of at least $50 million.

New York’s drug sentencing laws, imposed during a heroin epidemic that was devastating urban areas nearly four decades ago, helped spur a nationwide trend toward mandatory sentences in drug crimes. But as many other states moved to roll back the mandatory minimum sentences in recent years, New York kept its laws on the books, leaving prosecutors with the sole discretion of whether offenders could be sent to treatment.

“We’re putting judges in the position to determine sentences based on the facts of a case, and not on mandatory minimum sentences,” said Jeffrion L. Aubry, an assemblyman from Queens who has led the effort for repeal.

“To me, that is the restoration of justice.”

To me, it’s a start.

~McQ