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Are Obama and the "Elitist" Economist Correct?
We have seen quite a bit of debate regarding the Clinton and McCain proposed suspension of the 19.8 cent per gallon federal gasoline tax. A score of MSM pundit's have labeled the proposals "political pandering". However I have yet to see a rational defense of the plan. Some might argue there is none. Yet we do have to consider it more carefully before we make conclusions, should we not? Are are politcal choices driving our opinion of the plan? Be honest with yourself.
Hillary Clinton's defense was a non-response:
"I think we've been for the last seven years seeing a tremendous amount of government power and elite opinion behind policies that haven't worked well for hard working Americans"
Yet agian let's take a closer look.
First there have been concerns about Highway projects not being properly funded as a result of the estimated 9.0 - 10.00 billion dollars that the plan will cost. This is a fallacy as long as the projects recieve funding from another source.
In short it is a non-issue as far as the true economic viability of the plan itself is concerned.
One distinction between the McCain version and the Clinton version is that Clinton plans on replacing the funds with a windfall profit tax. In other words "Let the oil companies pay the tax" It is also important to note that O'bama while not supporting the "tax holiday" also supports
a windfall profit tax. How is it that these "big oil" companies should make all this "greedy pfofit"
We read about "record net income" but rarely think "record "net income taxes"
Here is a link discussing Exxon/Mobils tax bill for 2007. Note that a single company is paying more income taxes than the entire bottom 50% of ALL American taxpayers combined.
http://seekingalpha.com/article/63131-exxon-s-2007-tax-bill-30-billion
So in a way, the funds are already there, we just don't realize it, because we are spending these record tax revenues on a senselesss war in Iraq.
Additionally, many people do not realize that our goverment recieves a 1/6 or 1/8 royalty on all production originating from Federal lands, including the Gulf of Mexico. When prices are at "record highs" payment to the Mineral Management, are also at a record high. For oil produced from state oil land royalty revenues paid to states is at an all time high.
Next, lets go back and think windfall profit taxes. Here is a link to a Wall Street Journal analysis of WPT.
http://online.wsj.com/article/SB120977019142563957.html?mod=opinion_main_review_and_outlooks
Not the best outlook for WPT, and for sure to be the GOP talking points. Which bring us to another issue. Clinton talks "tax holiday" today. But she is putting the cart before the horse. Pass the WPT first and then debate "tax holiday". Proof of pandering? Perhaps so.
Now before we can fully explore wether or not a "tax holiday" is a good idea, we have to look at one last item and that is long term supply outlook and the realities of the market place from a demand side as well.
Here is a link to a NYT article that hits that nail on the head.
http://www.nytimes.com/2008/04/28/business/worldbusiness/28oil-WEB.html?pagewanted=2&ei=5087&em&en=e38986577295fc8a&ex=1209614400
Not the brightest picture, to be frank. To Obama's credit he is the only candidate that has made the points in the NYT article. The are real, accurate and for any policy to work and be effective are the cornerstone.
Some economists have argued that a "tax holiday" will not decrease prices. True or False? Well it depends of how we argue it. It is false to claim that gas stations will just "charge more at the pump". What most people do not know is the retail mark up on a gallon of gas average .09 - .10 per gallon regardless of whether gas is 2.00 or 4.00 a gallon. It is elasticity of demand that will increase as a result of lower prices causig prices to rise, not increased margin.
Furthermore, from a long term perspective, as the WSJ article suggests a WPT will result in a 3% to 6% decline in U.S. based production which will cause an even larger problem, higher demand combined with even lower supply creates an even greater rise in prices.
One arguement that neither Clinton or McCain have been smart enough to raise is that the federal and state taxes on gasoline are regressive taxes. A blue-collar consumers spends more of his income on these taxes than a wealthy consumer. Well okay perhaps Hillary Clinton makes ths arguement in a "blue-collar" way, by talking about "food on the table". She certainly can't use "elitist" terms like "regressive tax". Yet even if these taxes are regressive, it does not mean change is the best solution. People can do something about the amount of fuel they consume, but not the amount of food they cosume. (Diet's excepted, of course).
Conclusions. A tax holiday is going to appeal to many voters. They money is there to pay for it, without a WPT. But it is a best a short term fix to a much more looming issue, an issue that when you read the NYT article is clearly not going to improve or get better.
Improving the efficiency of cars, lower our speed limits will create a change in demand. Developing hybrid solutions will create a change in the quanity demanded. Given the outlook these are the only long term solutions. The are however solutions we should embrace, the are good for our wallets and good for the enviorment we borrow from our children. These are the paradigm shifts we must embrace and to the extent that Barrack Obama has been the only candidate that has even discussed long term out look in these terms, it is why he clearly is (like granny Weiss reminds us) the AMERICAN president that will help us get there.
Comments (16)
So far, the only person that Hillary has pointed to as endorsing her plan, is a lobbyist for Shell Oil Corporation.
It's a $30 billion gift to the oil companies that takes money and jobs away from maintaining our roads and bridges.
May 4, 2008 12:12 PM | Reply | Permalink
Sorry for all the typos, in my blog.
May 4, 2008 12:14 PM | Reply | Permalink
Somebody said on CNN yesterday (a regular voter) that's cheaper for his wife to quit her job and stay home than to pay for daycare and gas and work.
Just think about it for a second.
May 4, 2008 12:18 PM | Reply | Permalink
If she gets paid less than daycare+gas that is possible. I'm pretty sure the tax holiday from reality will not change that one bit.
Someone should suggest she offer to take care of other people's kids though. Seems like it pays more than what she was doing before.
See economics is fun.
May 4, 2008 12:38 PM | Reply | Permalink
Child care costs a fortune. The cost of gas now raises the amount of money one of the parents has to be making in order to offset the costs associated with working. However, were gas back at $2/gallon, this would still be the case.
Let's say gas is $2.00 a gallon, you have a 15 gallon tank, use a tank of gas each week for driving to and from work. That's $1500. The average gas now is about $3.60. So, same scenario, that's $2808. That's a difference of about $1300.
Child care averages $611 a month. In urban areas and more expensive states, it can go up to $1000 a month. At the average, that's $7,332 for one child. Double that if you have 2 kids under 5. So, for a family that has two kids, one parent would have to be making after taxes, $17,472 (at current gas costs) and $16,164 if gas were $2.00. And that doesn't even factor in the cost of work clothes, or additional food that is bought when you have kids in day care.
So yeah, there are people who can't afford to work because the costs associated are too high. The ridiculous cost of day care is the biggest part of this.
And no, not all people who take care of kids make decent money. Preschool teachers make about $20,000 pre-taxes.
May 4, 2008 1:10 PM | Reply | Permalink
Hilarym,
I agree this is a huge problem. However, the general public has yet to come to the uncomfortable conclusion that unwanted or accidental pregnancies are part of the problem. Someone posted a blog where a subtopic talked about how children of single mothers are the highest risk for being below the poverty line:
http://tpmcafe.talkingpointsmemo.com/talk/2008/05/liberalism-is-good-business-25.php
Although we immediately won't be able to fix this issue, the country needs to rethink it's positions about single motherhood -- and abortion.
I find much of this type of discussion is similar to the overweight people looking for a magic cure of their obesity when, in truth, the first thing that must be done is to control their appetite.
May 4, 2008 2:23 PM | Reply | Permalink
Let me begin by saying that I am the single mother of a wonderful 2-year-old boy who came into this world as the result of an "accidental" pregnancy. So I'll admit, I take some offense to your comment.
However, I'm sure you didn't intend it that way. What I don't understand is how you are faulting single parents for the high costs of child care. It seems a jump to me.
One of the reasons that child care costs are so high is because the overhead involved with running a day care are incredibly high. And, unfortunately, most child care centers cut costs where they shouldn't (day care worker/preschool teacher salaries) and fail to cut costs in places they should. I can tell you firsthand - very few are run efficiently.
Secondly, what I believe this country needs to rethink its views on are mothers in the workplace. The system we have now is incredibly outdated. First of all, there needs to be some serious increases in child care subsides in addition to major cost-cutting in certain areas within the day care business. Secondly, large businesses and corporations in particular need to become more parent-friendly. Many have already made huge advances in this area, adding on-site child care centers to their place of business, and offering discounted child care to their employees. But it is not the norm. And it's a business friendly idea - parents will have more time for work, less time running back and forth to the day care center. After all, happy workers are productive workers.
Additionally, Head Start needs to be expanded. By a lot. Doing this would also be helpful to those large numbers of single-parent families living in poverty. The restrictions on who may enroll in Head Start need to be loosened. As of now, it is open to families at 100% of the poverty line, and allows up to 10% of enrollment to be of families that fall above that line. The problem is that because the poverty line is so ridiculously low, families that I think should be eligible are not. For example, if you are a single mother of one child making $16,000 a year, you are not eligible for Head Start. (except in the 10% of enrollment allowed for those above the poverty line, which, as you can imagine, are tough spots to get.)
$16,000 a year! Well, let's say your rent with bills is $450 a month. That's $5400 a year. (And $450 rent with bills is damn near impossible to find.) So now we're down to 10,600. Gas to get to work? Let's pretend you spend $1000 a year. Down to 9,600. Food? Let's pretend you can get by on $120 a month. Down to 8,160. Since you can't get into Head Start, you can either try to find a family member or friend who can watch your child every day, or, if that's not an option for you, you're going to have to dish out some money for child care. If you can get some subsidies, you might be able to pay about $80 a month. Down to 7200. And that's if you're lucky, and can get those subsidies. That leaves $600 a month, assuming you don't go over costs on any of these things. And that's also if you don't have to pay any taxes, which we know doesn't happen.
May 4, 2008 10:10 PM | Reply | Permalink
Thanks Opus
I am afraid we agree for diffrent reasons.
1) Gas -.19 = Higher Demand
2) Higher Demmand = Higher Prices
3) Higher Prices = Higher Income
So in a way you are correct, but it is not as direct of a link, that alot of folks are trying to make of it.
Lastly, the money for roads is there, in the form of higher income taxes and royalty revenue being created by high prices.
May 4, 2008 12:22 PM | Reply | Permalink
This is misleading, as the oil companies fight tooth and nail to pay these royalties.
May 4, 2008 12:29 PM | Reply | Permalink
Thanks for the link.
I worked in the industry for years, developed a reporting systm as a matter of fact and based on Gambrell's statements can state clearly without a doubt that he should have been fired. There are numerous checks an cross checks that are in place. For example OGOR vs 2014 reporting.
Yet to allege the "most of them don't" is as close to libel as you can get..
Lastly they do have RIK (Royalty in kind options) which can and are used if the problem is as serve as he suggests.
May 4, 2008 12:39 PM | Reply | Permalink
Obviously.
Gambrell is successfully bringing lawsuits against big oil for exactly what he was fired over. Note that the government settled the wrongful termination suit. Wouldn't do to let that kind of info go to trial.
Might get the Muggs, er, citizens a littler pissed off.
May 4, 2008 12:55 PM | Reply | Permalink
You can hang on to whatever floats your boat.
I have not been in the industry for over 10 years and have no interest in defending it either. But if you want the truth then sometimes it comes from workerbees themselves. And I could write a book over the MMS's issues.
I am not going to deny that some companies need to be targeted. But again to suggest most companies don't pay is just plain B.S.
Most of the disputes involve price not volume and as I mentioned, they can take the product and sell it themselves, if they think the are not getting fair price. But they refuse to pay for cost such as processing (when natural gas goes through plants) don't want to sign on to producer imabalnce agreements, don't want to deal with pipleine imabalances. for years made recouping overpayments next to impossible...
They do have auditors and sometimes do find problems. But most of what they claim are problems is the fact that they more often than industry demand value they are not entitled to.
If for example Hionjosa had asked "What is the average (net of transport) price you recieve for RIK natural gas, compared to industry payments from similar markets? (ie natural gas is transported into various index points, mainly at Henry Hub) We would have an honest barometer. Gambrell knows the score in this case, but it is curious that he remains silent?
If he could as an effective adminstrator outperform the industry, knowing the MMS essentially controls about 1/7 of all offshore supply, they would be doing it?
Maybe the Muggs, er, citizens deserve better from their government.
May 4, 2008 1:25 PM | Reply | Permalink
Now you're changing the subject to Natural Gas?
Interesting.
If you have no interest in defending these companies, then why are you doing it?
The American People deserve to get the royalties the oil companies agreed to as a matter of patriotic duty.
There are some things that are more important than profit.
I understand that refineries aren't profitable, because there is a concerted effort to limit the number of refineries. The gas stations themselves are working on narrow profits that have grown narrower lately, so cui bono? The crude oil producers are SUBSIDIZED by the taxpayers to improve their infrastructure. They have failed to do so. Those subsidies have gone into the pockets of the shareholders of oil companies. The fact that an auditor finds that most cheat on paying the American people for the privilege of getting it out of the ground that they own is insult on top of injury.
When something as lopsided as oil company profits is responsible for a lot of hurt to the general welfare, the government has a constitutional duty to redistribute some of that wealth, that really belonged to the American people in the first place.
You folks have had your shot at free markets. You screwed it up due to your unbridled greed and disregard for your neighbor's welfare.
That's on you.
Now when a politician picks up a club to beat your sorry asses back, I've got to step back and applaud.
There's really not too much difference between this gilded age and the last, except that you folks have many more tools with which to peddle your pro-corporate nonsense.
If it was up to me all corporations would be dissolved after 75 years, as they were in the beginning. If their persons under law, they should die, just like real people.
Oil and gas ARE public utilities and should be handed over to people that would take a 3% profit and be happy with it. I'm sure there's plenty.
May 4, 2008 1:52 PM | Reply | Permalink
RandyRP,
Don't expect too much from workerbee. Her line is basically the country needs to go back to the FDR programs of yesterday -- as if the last 75 years hasn't happened.
Her biggest pitch is along the lines of class warfare -- and has a fairly close-minded, rigid thinking about issues. (The old: you guys = bad, we guys = good.)
Interestingly, she has admitted to owning two homes. So much for that "each according to his needs" adage.
Thanks for the post. We need more of them like this -- fact laden.
May 4, 2008 2:15 PM | Reply | Permalink
If you are trying to prove what a jerk you are you're doing a fine job, and if you stalk and degrade me again, I will flag you to Andrew.
Enough is enough.
After a 23 year marriage, rather than turning my ex out of our home, (which he wouldn't leave,) I went and got another one so my daughter and our pets could live in peace.
This is something you know, as it's in one of the threads you highlighted in your sophomoric complaints about me.
The reason it even came up is because you were ridiculing me for sticking up for the little guy by suggesting that somehow i wasn't successful. After I disabused you of that idea you moved the goalposts and said my work wasn't meaningful, after i disabused you of that idea, you went nuclear and wasted a thread on the evils of workerbee.
Now you are stalking me and making nasty, untrue remarks.
One question: What in the hell is wrong with you?
As for "facts" I'm not sure the WSJ qualifies for containing anything factual since Murdoch purchased it and it's reporters. Also, there's nothing wrong with ideas that work. New Deal policies did work, and they worked for all those people you like to look down your crooked nose at.
May 4, 2008 2:40 PM | Reply | Permalink
Thanks clearthinker, after the last post. I agree.
I was trying to bring clarity to an issue, that I thought a few people would be interested in learnig the real facts about. I mentioned that I have not been in the industry for ten years and talked natural gas, because that is where more of the actual disputed issues really lie. I do not support giving oil companies a free ride in any way shape or form. However the matter is not as cut and dry as gropus like POGO would have you believe. As I have read a bit more about it I can spot some or POGO's problems as well.
For example, they mention that electronic compliance reports rather than direct field auditing is some how creating problems which allow companies to "cheat". This is incorrect, I mentioned in my first post on MMS, that I developed a database system for royalty payments and reporting. Prior to better systems many companies, mine included, manually filled out forms to document the payments. When these were recieved by the MMS they were manually key punched into their systems. There were many errors (not fraud) on each side, I would recieve reports from the government called "AFS vs PAS" these were requests to verfiy a supected error. After I brought up the database, we could run reports from it against our own accounting system, this allowed us to fix errors before we made them. Also, I would send the data to the MMS (government) as an ASCII file the could upload into their system and eliminate mistakes from their end. These forms/databases (MMS 2014) contained 19 different data fields and manual keypunch errors on their end were the root of a lot of the issues. In short, properly implemented electronic measures do a much better job finding both intentional and unintentional problems.
POGO themselves states that in most cases the problem is "price" not "volume" again reports can be run to calculated value/voulme = price vs an index price to determine whether a company is paying correctly.
POGO talks about whistle blower issues, frankly I am bothered when whistle blowers are fired. It is a problem and I support laws to protect them. Yet they also state the MMS whistle blowers are filling lawsuit as INDIVIDUALS, and collecting a 30% "reward". This is a strange situation, when the whistle blower is an auditor. My background is accounting, and we genrally don't not get "finders" fees. For non-auditors I can agree with a reward. But for someone whose job is supposed to be finding mistakes (money) it begs the question of whether or not there is an ethical conflict.
Laslty I came accros a POGO report that stated Kerr-Magee paid improper royalties on oil sold by a marketer (Texon) They recieved a payment of 1-3 (about 5%) dollars less than index per bbl.
Apparently, Texon company aggregated, transported, and marketed. Actual transport was always deductable, but the admin costs where a legitimate grey area at the time. Unless the "marketer" is a subsidiary or sister company. No non-affiliated company is going to buy product at the wellhead, without deducting transport costs PLUS admin expenses, when the can buy ONSHORE and bypass these costs entirely. If overzealous goverment auditors want to go on a witch hunt becasue they get a 30% stake in the matter, then it creates further problems. Gambrell claims he reached a settlement for 8 time the value the MMS themselves saught with a royalty payor. That just does not jive, no one is going to pay 8 fold the issue at hand.
Ironically the biggest issue BY FAR, is faulty contracts on the part of the Government regarding deepwater leases. Some companies have voluntarily negotiated settlements, but legally they don't have to.
In closing, yes I do not doubt that some companies have intentionally gamed the system, but for someone to suggest "most cheat" when they have a personal stake in the matter, is not something the we should just accept. If we are going to make positive changes that protect our government's right, we have to address the problems realistically.
May 4, 2008 3:19 PM | Reply | Permalink
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