Senate: Oil and Gas Industry Tax Breaks Remain

As you know, anti-oil company sentiment is at its peak right now. A recent poll showed that 75% of Americans blame BP “a great deal” for the spill. So, it was no real surprise when the Senate failed to say no to $35 billion worth of tax breaks for the oil and gas industry. Senator Bernie Sanders (I-VT) introduced a provision that would have limited write offs for drilling expenses, eliminated a tax deduction for the capital costs of oil and gas wells and repealed a tax deduction for domestic production of oil and gas. He needed 59 additional votes. He got 34.

Why should such companies receive additional forms of tax relief when the average taxpayer enjoys hardly any at all. Let’s us not forget that we are in a deficit of $13 trillion dollars…yes, that’s with a “T”. So, with such a deficit, a stagnant national unemployment rate and a lingering recession, why are we looking to give tax breaks to oil companies? Especially when over the last decade, the five largest oil companies (Exxon Mobil, Chevron, ConocoPhillips, BP and Shell) made more than $750 billion in profits. This is a no-brainer; these companies simply don’t deserve tax relief.

What are your thoughts? Let me know @ronideutch on Twitter or on Facebook.

Senate Plan For Oil Company Tax Has Sparks Flying

Yesterday, Democrats in the Senate unveiled legislation aiming to increase taxes on oil companies, and provide tax breaks for individuals, businesses, and the unemployed. The huge measure is already drawing criticism from conservative members of congress that do not approve of the $60 million tax increases included in the legislation.

The bill contains many long-pending provisions, including the renewal of dozens of popular tax breaks for individuals and businesses.

Many elements of the bill, like the tax cuts and further unemployment benefits for people out of a job for more than six months, enjoy broad support. But Republicans generally oppose the measure’s nearly $60 billion in tax increases.

Even with those levies — on investment fund managers, oil companies, and some international businesses, among others — the measure would add about $80 billion to the deficit over the next decade, congressional analysts said.

It closely resembles a bill the House passed last month, with a handful of exceptions.

Continue reading at Boston.com…

Hawaii Governor Vetoes Oil Tax and Other Bills

From BusinessWeek.com:

Hawaii Gov. Linda Lingle is vetoing measures raising taxes on oil, estates and traffic abstracts.

Lingle said in her veto message of the $22 million oil tax Tuesday that it would affect every resident by increasing the amount they pay for electricity, gas, shipping, retail goods, food and propane.

Traffic abstract fees would increase in cost from $7 to $20, generating $6.5 million.

The estate tax would raise $10 million next year.

The Republican governor also vetoed a measure preventing the closure of 31 welfare eligibility offices statewide and consolidating them into two processing centers in Honolulu and Hilo.

The Legislature plans to attempt veto overrides Thursday.

Lingle signed a cigarette tax hike of 1 penny per stick, bringing in $11 million.

A California Tax On Oil Drilling? Why Not?

Los Angeles Times writer Michael Hiltzik recently posted an interesting article on how taxing California oil drilling could be highly lucrative for the state’s struggling economy. You can find a clip of his story below, or check out the full post here.

The most persistent misconception about Californians is that we hate to raise taxes. The truth is that we adore raising taxes—as long as someone else is paying, that is.

So nonsmokers vote to raise cigarette taxes, teetotalers to raise liquor taxes. The middle and working classes want to hike taxes on the rich, who are happy to return the favor.

Yet this only compounds the mystery of why we're so resistant to raising taxes on perhaps the biggest, fattest target of all: the oil industry.

At least twice since 1981 Californians have considered proposals to impose a so-called severance tax on oil -- a levy on every barrel that drillers take out of the California ground. Both times they went down to defeat -- most recently in a $150-million initiative campaign that set a new standard for obscenity in campaign finance, thanks to Chevron and its fellow oil companies. The 2006 defeat of Proposition 87, which would have steered the tax proceeds to alternative fuel programs, preserved California's status as the only one of the 22 major oil states to give the industry a free ride. And we're the third-biggest producer in the country.

How embarrassing is it for California to be hanging out there alone? That outstanding anti-tax crusader, Alaska Gov. Sarah Palin, in 2007 raised her state’s tax to 25% of the value of extracted oil and gas. Proposition 87 would have capped California's levy at 6%. So even if it had passed, we'd still be suckers.

With the state's fiscal disaster having concentrated the minds of political leaders as never before, the oil severance tax is back on the table in Sacramento. We can expect the oil industry to trot out the same arguments it employed to defeat the tax the last time, so to save time it might be helpful to deflate them now.

At the current world benchmark price of about $70, the 6% tax contemplated by Proposition 87 would have generated more than $1 billion a year from that haul.

Consider some "what if" scenarios: At last year's peak benchmark price of $130 for California crude, the take would be nearly $2 billion. Palin's tax rate of 25% would generate $4 billion at a $70 price and nearly $8 billion at the top.

An important aspect of the severance tax is that we'd better collect it now, while there's still something to tax. California oil production has declined steadily from its 1985 peak of 424 million barrels. Since 2002, according to federal statistics, the state’s known reserves have been depleted to about 3.3 billion barrels from more than 3.6 billion.

The severance tax might be offset by reductions in property and corporate income taxes paid by oil companies. But an analysis of Proposition 87 prepared in 2006 by the nonpartisan Legislative Analyst's Office found that such offsets would amount to a mere fraction of the severance tax, so the state would still come out way ahead.

Let's be candid about the rationale for the severance tax. States levy it because they can: The oil's not going anywhere. Oil companies can't pack it up and move it to a state where rates are lower. It creates wealth -- enormous wealth at times of elevated market prices, like now -- and any jurisdiction in need of funds to cover services it provides to its residents has a perfect constitutional right to claim a piece of it, as it claims a percentage of the value of real estate and income (earned, unearned and inherited).

Obama's Oil Company Windfall Profits Tax and the Wall Street Journal's Celebration

From HuffingtonPost.com:

Friday's Wall Street Journal editorial, "Barack's Windfall Reversal," in barely contained gleeful terms crowed that a transition spokesman "explained this week that that the drop in oil prices to $50 barrel has made the windfall tax a dead letter." The editorial goes on to point out with degree of "I told you so" smugness, "left unexplained was why the oil companies suddenly decided to stop profiteering, or manipulating commodity prices."

Exactly the point. The oil companies were not manipulating commodity prices. Their role was limited to cheering on OPEC and lobbying our government to remain dangerously benign, playing ostrich to OPEC's manipulation of the oil market.

You see, cartels are most effective in rising markets where supply is relatively balanced or there is perceived shortage of supply, thereby causing the cartel's manipulations to be supportive toward ever-increasing prices. Discipline among cartel members is readily maintained in that revenue from lower production is made up from higher prices.

And as the oil hedge fund speculators got blown away this year and as the world's need for oil began to recede in the face of economic crisis, OPEC's control of the market began to fade in classic cartel tradition. As supply moves from shortage to balance and oversupply, control of the market begins to slip away from the cartel. Revenues from reduced production can no longer be made up from higher prices and the discipline of the cartel begins to collapse. The OPEC cartel has no enforcement capability in place to police production quotas of its members, and the propensity for cartel producers in analogous situations has most always been to "cheat" around the edges.

More than anything, the march to $147/bbl this year was in large measure due to the OPEC cartels success in manipulating the supply of oil on the world market. Its success was tantamount to a cartel imposed tax on consumers here and throughout the world. It had nothing to do with the free functioning of the marketplace. At this very moment OPEC is plotting to curtail production again at its scheduled December meeting in the hope of changing the free market dynamics of the market from current price softness (at the beginning of the Bush presidency the price was closer to $20/bbl so even here "softness" is relative) toward programming tighter supply and higher prices.

Should OPEC be successful in any way in regaining their hegemony over the market the new Obama administration should make it clear that the imposition of the oil windfall profit's tax will be applied forthwith, in that higher oil prices under these circumstances and in turn higher oil company profits have nothing to do with the workings of a free market.