A Little Love for Big Oil

Oil companies report record profits. Gas is headed towards $4.00 a gallon. A caravan of over 100 truckers rallied in Washington Monday to protest diesel fuel prices already over that mark. Across the country, Americans are getting pinched by rising fuel and food prices.

So politicians, as Rev. Jeremiah Wright would say, "do what politicians do." John McCain offers up a temporary "gas tax holiday," suggesting the Congress suspend the 18.4 cent federal tax for the summer, at a cost of about $10 billion in money earmarked for highways, bridges and other transportation projects. Not to be outdone, Hillary Clinton instantly agrees, adding she'd replace the money to the highway fund with an excess profits tax on oil companies. Both immediately scorn Barack Obama as "elitist" for saying that it is a "bad idea." Now this exchange will be a staple of the talk shows whenever gas prices go up.

Now neither McCain, married into a $100 million fortune, ushered about in his wife's corporate jet, nor Hillary are exactly convincing populists. But McCain knows this is political gold, offering folks "a little bit of relief so they can travel a little further and little longer and maybe have a little bit of money leftover to enjoy some other things in their lives."

Only there's one small problem with this tax cut: the oil companies are likely to pocket most of it.

Rising demand for gas and oil has driven prices up around the world. In this country, the oil companies say their refineries are pumping out as much gas as they can, so prices are likely to rise even higher this summer as Americans set out on family vacations. They can sell all the gas they can produce at $3.50 to $4.00 a gallon, including the 18 cents in gas taxes. So McCain and Hillary revoke the gas taxes. Is there any reason to think that the oil companies won't continue to sell their gas at the $4.00 a gallon that it already commands, and pocket the difference?

Economist Dean Baker of the Center on Economic and Policy Research calls it a "summer tax break for Exxon," noting: "We have a fixed amount of gas entering the market, the question is simply what price clears the market. If we reduce or eliminate the gas tax, the price doesn't change, the lower tax will simply allow Exxon and other oil companies to keep more profits."

This is Economics 101, a subject that McCain admits is "not something I've understood as well as I should." (He later denied making the statement) Obama isn't an economist either, but he's had experience with gas tax holidays in Illinois. As the Washington Post reports, Obama voted for a six month suspension of Illinois' gas tax in the summer of 2000 when prices soared to a then obscene $2.00 a gallon. The state lost about $175 million in revenue; the price of gas fell by an average of 3%, suggesting that about 60% of the savings were passed on to consumers. But any increased demand that might have resulted in Illinois from cutting the tax could be accommodated by transferring gas from another state. In a federal program, any increased demand from an initially lower price would drive that price back up to its current market clearing levels. There are only two ways to lower the price -- increase supply or decrease demand. McCain and Clinton's tax cut would do neither of these.

That, of course, won't stop either of them from peddling the tax and from scouring Obama for being "out of touch." For Hillary, this is just part of the "kitchen sink" she's throwing at Obama. For McCain, inconvenient truths don't seem to matter. He knows what he thinks and doesn't want to be confused with facts. Capital gains tax cuts always generate more revenue. Al Qaeda is the biggest threat in Iraq. Corporate trade deals don't hurt wages. Privatization of Social Security will make seniors more secure. And don't worry, big oil won't charge what the market will bear for the price of gas.

Comments

[jsarets]

McCain seems to think the oil companies will invest in our public transportation infrastructure or that our infrastructure will maintain and improve itself. Clinton seems to think that most voters don't realize that taxing the producer is equivalent to taxing the product. McCain is wrong, and Clinton is right (unfortunately).

Clinton's plan is economically equivalent to Obama's plan (do nothing), but by renaming the gas tax to the oil baron tax, it plays better politically. Obama refuses to pander to the working class with economic placebos that repackage a regressive consumption tax as a regressive production tax, even though such ploys are staples of Democratic partisanship.

A much better option would have been to increase the progressivity of the individual income tax to reflect the impact of rising costs of energy and food on those that spend a larger portion of their income on such things. But instead of shifting the tax burden from the working class to the investing class, we opted for a stimulus package that shifts the burden to future generations.

It sure doesn't seem like the next 50 years are going to be substantially more prosperous for Americans than the boom times of last 50 years, but this is the bet that our political leaders have placed. We have to continue our unprecedented domination of the global economy against the equalizing effect of globalization, while our leaders' attempts to use deficit spending to sell free trade are all but guaranteeing America's gradual movement toward protectionism.

[Paul]

The future is mass transit.

We should be building a mass transit system that gets you anywhere you want to go anytime you want to get there.

Think about it: no more car payments, no insurance premiums, no maintenance costs and no more money for gasoline. What a boost this would be to the US economy if every family had several hundred dollars a month to spend on something besides transportation.

[Sciguy]

This is NOT an attack on the above comment, just an addition to it.

Mass transit would work for city folks, but what about rural folks? There's just not enough mass to transit!

Around here (rural Kentucky), the rural electric companies have finally built enough lines to supply *almost* every resident with access to the grid. Lots of people don't have city water, and sewers are strictly for city folks. Mass transit isn't cost-effective for rural areas. People who live on farms (read: produce food) have no choice but to use single-family vehicles for transportation, and trucks for getting food to market.

I suppose I could saddle up one of my horses and ride to work, but where am I going to hitch him up when I get there?

[Paul]

The rural population of the US is estimated to be about 20% according to the 2000 census.

Perhaps rural folks would change their housing patterns to live in small communities instead of singly on farms or ranches - commuting to the fields is how it is done in Europe. This would simplify logistics and mass transit for people. You walk around the village, and mass transit takes you to the other places.

I think that the cost of the fuel needed to bring labor to the fields and crops to market would be part of the cost of buying food.

I realize this is a big change in mind-set for country folks who prize their solitary ways, but it would be the better alternative to being hostage to a volatile commodity.

[BillyT]

While McCain and Hillary (Hillary McCain) have touted this idiotic and damaging gas tax holiday idea to eliminate 18.4 cents per gallon over the past 4 weeks,

The average price for gas has ALREADY RISEN 20 CENTS OVER THE PAST 4 WEEKS.

That's enough to show how idiotic this concept of tax "relief" is.

Problem is:

Oil companies can raise the price to whatever they think the US public will pay.

If there's a void in the price left by the tax suspension, you think they're not just gonna leave it down there?

They will be there so fast to fill the void by raising the price of gas and you can't even do anything about it.

Gas Tax Holiday = Legal Windfall for Exxon, Mobil, Chevron, Texaco, and of course Hugo Chavez.

Smart idea that Hillary McCain has come up with.

[Durango]

So what is really going on here?

I have a theory. Saudi Arabia made a deal with the USA back in Franklin Roosevelts time. They would trade oil supply for protection by by the USA.

Despite difficulties over the decades this deal has been maintained.

But along come "Oilmen" Bush and Cheney. (or rather Cheney and Bush). They engage in a stupid destructive war on the Saudi's border. Against all the advice of the Saudi King and his officials. The Suaidi's are faced with relentless stupidity. And every attempt to find a reasonable solution is rebuffed.They have voiced their displeasure in private. They don't like the Iraqi insurgency, which might target the Kingdom next, if they are successful in Iraq. But there is no solution at hand except more war.

What are the Saudis to do? They can't come right out and denounce Bush?Cheney. That is not how they play the game.

So they turn off the pumps. Hoping to get the attention of Cheney and Bush. And THAT doesn't work. Not all the pumps. Just enough.

So the rest of us pay the price in astronomical fuel prices.

[geofrost]

You are missing something from your economic analysis: Why would a windfall profits tax, as proposed by Clinton, not recapture the same amount from the oil companies that they take in through higher prices on gasoline?

[farlep99]

by the time a "windfall profits tax" would make it through the house & senate and the president (BUSH) signs it, it would be well past the summer drivers season & would make no difference. This is beside the fact that it wouldn't get through Congress & Bush would never in a million years sign it.

[Pquilson]

Windfall profits tax did not work the last time. Remember Carter?

[UCLAdy04]

You're missing the point...how would "higher prices on gasoline" be a BREAK for people at the pumps? By suggesting a "windfall profits tax" you and Clinton are implicitly suggesting that the gas prices would in fact be higher.

To make matters worse, there is no reason to believe that with the rise in gas prices over the summer without the taxes that the price of gas would go down again once the tax is reinstated. So then what are we left with? Gas prices that are much higher than they would've been without the stupid and pointless "holiday".

[BillyT]

geofrost:

I will keep this simple because it really is.

Windfall taxes have been tried. And failed.

The oil companies will simply raise the price to cover the tax.

So who ends up paying the windfall tax, you think??

That's right: YOU PAY THE WINDFALL TAX.

[zippywpinhead]

what makes you think that the oil companies wouldn't simply pass on the cost of a windfall tax to the consumers as just another legitimate business cost?

[prattvictory]

You can only charge so much for gas before you collapse the economy. The oil companies are charging their costs plus a profit, a whole lot of profit. The can only squeeze so much. Tax that profit, tax the shlt out of that profit. We should also be talking about nationalizing oil.

[Sciguy]

Don't they already do that? Seriously - luxury taxes and windfall profits taxes are initially paid by the corporations involved, but it's basic economics to pass those costs along to the consumer.

[stepintothelight]

Once again ... Barack Obama has taken an unpopular stance that is better for us in the long run. But there are still those out there that say Hillary and McCain represents their needs and interest. Race over Wallet ... That is the fault in America's capitalist structure. Anyone hear those chickens ... They are definitly on their way to the home roost.

[SDindependent]

The 18 cents will end up in the bank accounts of OPEC, at the same time we layoff 300,000 highway construction workers and put them on unemployment.

Anyone know why we don't need another 8 years of people with 30 plus years of experience running bad government.

[SDindependent]

The simple fact is the 18Cents will end up in the oil companies bank account........ we transfer it from the highway fund to the opec fund...... and put 300,000 people on unemployment at the same time.

Brilliant...... anyone know why we don't need to hand another eight years to people who already have 35 years of experience running bad government.

[ignorantwillyharper]

Our Oil companies control no more than 10% of the world oil. The Saudia's and Russian's control 90% of all the world oil, they set the price. Bush, being the idiot he is, should have sent six to seven large barges to Saudia Arabia, told all the royalty to on aboard as your sorry asses are going out to open sea and not coming back, as we are taking over your oil fields. Then we would be paying ten cents a gallon, instead of $4,00 a gallon.

It was 80% Saudia's that hit the World Trade Center's, but no, we go and jump on Iraq. W. and Dead Eye Dick have screwed the pooch went it came to our interest in America. They sure as hell took care of Haliburton.

[ignorantwillyharper]

I just wish gas was headed toward four dollars a barrel. I'd buy a thousand barrels today!

[FirstShirt]

http://www.wesh.com/automotive/16093985/detail.html

How about a little love for biodiesel? Not a joke. this link is off of CNN.com and in our town we also have some young entrepreuneurs getting grease from local restaurants and fueling their cars with it.

[Smartey]

Why does everyone attack big oil? Big pharma? Big chain stores?

Why not big feminine spray companies? Big movie companies? Big sex toy makers? Big carbon offset companies? Big deodorant makers? Big vienna sausage companies? Big Al Gore, Inc.??

Big is big. And I'm an equal opportunity anrti-big-ot.

[grayforester]

Smartey, you're really not kidding, are you? If you're being exploited by the sex toy industry you have only yourself to

[bronceye]

It's not a "plan", it's a pander. We've seen gas go up 18 cents in 24 hrs. The money goes for highway work and maintenanc­e(Minneapo­lis bridge, anyone).The money goes for wages to people who put those wages into the economy, not the Kaymans. I like chocolate chip ice cream, I'm holding my vote for the candidate who promises free and endless chocolate chip ice cream. It will be rendered futile, I fear, as my wife plans to vote for the free cake candidate. We're waiting for these representatives of the electorate to realise that cake and ice cream are the most important subjects to working class people.

[TRCimino]

did you mean Caymans??

[davefoc]

Unless your goal is to increase oil company profits this was one really bad idea. It was a pleasant surprise to see that both Clinton and McCain probably lost a little more than they gained by promoting this stupid idea designed solely for the purpose of pandering to voters without any nationalbenefit.

The idea is a bad one for several reasons that should have been obvious to both McCain and Clinton:
1. As the author states the oil companies would eventually raise prices to replace the eliminated tax. If the oil price was set in a competitive market lowering a tax would result in a price reduction but the price of oil is controlled by a few powerful oil producing countries and they have already set the price near their profit maximizing level. Reducing a tax doesn't change their profit maximizing level and they will just move the price up to compensate for the eliminated tax.

2. The plan unfairly shifts the cost of maintaining the roads to people who don't drive cars.

3. At a time when the national security of the US requires an increase in fuel efficiency of the transportation fleet this measure would reduce the incentives to accomplish this.

4. One of the main reasons for the rise in the price of gas is the falling value of the dollar. One of the principle reasons for the falling dollar is that the US spends money it doesn't have. This plan would just exacerbate that problem.

[TRCimino]

The gas tax "holiday" is only another loan, similar to the "stimulus rebates"... all to be repaid later. Fuel taxes pay for highways. It's that simple and the only way this wouldn’t hurt us in the long run is if we stopped using those highways during the proposed period.

I hate to say it, but it's probably time to start revisiting the "great train debate." A train can haul two tons of cargo over 1000 miles and do so using less than a gallon of diesel. Trains are cleaner, more efficient and safer.... even safer than air travel!

In another blog I supported a mandated 55 mph speed limit. After thinking about this though, I was reminded of how, in the 70's, it was the truckers who boycotted a similar mandate... convoying at 80 mph... and burning as much as 40 to 60% more fuel. To this day, these truck drivers still don't see how those actions hurt them in the long run. While I admire our nations truck drivers and respect the valuable work they do, I was reminded by another blogger that a large portion of this subculture DID vote for our current president.

Yep, a nice long train, slicing through the countryside, is looking pretty good to me.

T.

[bronceye]

Truckers are limited to the amount of time that they can drive per day/week. Most truckers are paid by the mile. Nuf sed.

[TRCimino]

And many use 2 log books...etc...

No one is figuring in what I like to call the "Trucker's Tax". This is the money that we all pay to repair the roads year after year. It’s true that truckers pay approx 6 to 8 thousand dollars per year in fuel taxes, most of which is going back to fix our roads. The only problem is that, and it's estimated, the average O.T.R.(over the road) truck costs the tax paying public approx $ 120,000 per year in highway wear and tear. It is estimated that the wear value of one pass of an average loaded tractor-trailer is equal to 100+ passes of an average passenger car. This doesn't take into account the illegal/ overweight loads, which some experts say may account for 7% of the trucks on the highway today.
Weight x Contact(number of wheels.. 18 in this case) x Speed = Highway friction factor. Do the math.

Like I wrote before... trains are looking pretty good.....

[Durango]

I don't live anywhere near an Interstate Highway. But the last time I drove one it scared the living crap out of me. The speed limit was 75. The trucks were going at least that fast. And I had to go even faster if I didn't want to get run down.

Tthere is no way anyone's reactions are quick enough at that speed.

What are the physics? At speeds over 55 the energy needed increases exponentially? (is that right, I mean by a factor of 10?) And fuel consumption increases exponentially as well.

And the highways were not in good enough condition. And this tax holiday idea will not help.

Reduced speed is a good idea. More reliance on trains is an excellent step. And urban/suburban planning for homes and communities that are accessible to trains is an even better idea.

All of which will happen if the price of energy remains in the stratosphere.