November 10, 2005

Oil Prices, Heating and Taxes I

Carroll Andrew Morse

Oil-company executives were called to give testimony before the Senate yesterday on the subject of high fuel prices and profits. Though the hearings themselves were largely grandstanding, they did bring attention to a number of energy policy options currently under consideration: should a “windfall-profits” tax be imposed on oil companies, what kinds of tax exemptions should be offered for money reinvested in development of alternative fuel sources, and how should proceeds from a windfall-profits tax be used.

Senator Jack Reed wants to spend the money from a windfall-profits tax on increased heating assistance to low income households. This certainly sounds like the compassionate thing to do and a political winner. But there is a problem. As the past year has more than amply demonstrated, the Federal government consistently mismanages large sums of money under its control – bike paths instead of dam repairs, federal building improvements over aids drugs, bridges to nowhere over hurricane relief, etc. A low-income heating assistance program would be no different.

First problem: Senator Reed claims that an additional $2,900,000,000 is needed to fully fund the low-income heating assistance program, yet was unwilling to propose redirecting $3,000,000,000 spent just last week on a government subsidy of digital-to-analog television converters towards something more worthwhile. The Democrats' slogan is don’t force people choose between heating or eating. Senator Reed had a choice between helping people heat or helping them watch TV, and he chose in favor of TV.

Second problem: Senator Reed’s state-by-state list of where heating assistance money will go is evidence of yet more irrational government spending.

In the proposed heating assistance budget, the top five states in terms of heating assistance-per-household are Louisiana (#1), Texas (#3), and Florida (#5). Those aren’t cold-weather states. The average amount budgeted per household in Lousiana is $1,547, while the average amount budgeted per household in West Virginia is $264. There are more cold days in WV than there are in LA, WV’s coldest days are colder than LA’s coldest days, and you can’t explain the funding differences by citing West Virginia’s affluence. The state with the second most households receiving assistance would be North Carolina, a warm weather state that has more than twice as many households slated to receive assistance than does the colder state of New Jersey. Almost as many households in Hawaii are budgeted for heating assistance as are households in Alaska (though at much less per household).

Until the Federal government introduces increased transparency and rationality into its spending, the public is right to be suspicious of “Tax big to spend big!” as an actual solution to any problem.

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Absolutely ridiculous. Did we have a windfall profit review of the real estate sector...homebuilders, REITS, lenders, in the last 5 years? What about tech and dot-coms '96-2000, or financials and venture Caps '92-'97, etc., and their windfalls? S&L asset raiders in the late 80's or Japanese RE-selloff-raiders '89-93? NO!
187-3000% profits and declines are okay to the fast-and-furious investures looking to dip their wick and play at investing when it's fashionable. But the steady, sane, and stoics who invest and diversify, resist fast promises yields and returns by DCA and CBA, and invest bull or bear in stalwarts proven to perform profit and survive those swings...Must now have their energy holdings suffer penalty for their 27-47% pre-tax profits, cash savings(yes,tens of billions but in companies with market caps of hundreds of billions), share buybacks, etc.? Sounds like a model the Govt. should be admiring and emulating, not condemning and searching for a way to penalize and grab hold of those profits.
They're not seeking control of an out-of-control industry, but more control and regulation of an already over-regulated sector they wish to turn into the next utility or telecom. Sectors whitch were once very profitable(to company and their individual investors) then destroyed by govt involvement so restrictive and inept, they later required additional legislation and deregulation to undo their mismangement and resulting profit declines at the hands of the feds.
my 2 cents


Posted by: propp at November 11, 2005 4:15 AM