Democrat's Tax On Oil Companies Won't Ease Price At Pump

Joe Bell

In late February the House voted 236 to 182, largely along party lines, in favor of an $18 billion tax package that would repeal a tax break for five major oil companies. If the mess becomes law, which it should not, the resulting tax dollars will be applied to encourage the use of wind and solar power and to boost energy efficiency. This is a transparent effort on the part of liberals to make the public believe ‘something is being done’ to bridle oil company profits and curb gasoline prices.

Democrats justified their resolve to hand oil companies a tax increase by citing large corporate revenues and high gasoline prices. Congressman Jim McDermott, D-Wash., implored his colleagues to “stop the madness of subsidizing oil companies”. There is surely madness woven into this tapestry but the lunacy falls upon anyone who believes this maneuver will bring down the cost of gasoline or put any money back in consumer’s pockets. All it will do is fuel the class warfare strategy that has long been one of the left’s most beloved political ploys. Clearly, the tax increase is inspired by consumer resentment over high gasoline prices even though the tax code has nothing to do with the price of crude.

The Heritage Foundation points out the record earnings harvested by oil companies have been accompanied by record tax bills. Revenues from the 27 largest energy companies reached a record high of $220 billion in 2006, which was far above the revenues of $188 billion in 2005 and $129 billion in 2004. This is only part of the story.

Heritage observes, “Total income taxes also rose to a record high of $81 billion in 2006, compared to $67 billion in 2005 and $45 billion in 2004. This effective tax rate of 37 percent in 2006 is in line with (and actually a bit higher than) large corporations in general.”

While it might produce a sense of satisfaction to punish oil companies for their profits, this tax bill will do little more than provoke an increase in the price of gasoline. The Democrats’ tax hike will discourage investment in natural gas and oil exploration, thereby creating a shortage of energy. This is an easy scenario to predict because we’ve seen it before. A windfall profit tax was imposed during the Carter Administration as a way of penalizing oil companies for reaping large profits. The tax was so damaging it was repealed in 1988, during the Reagan Administration. Due to the windfall profit tax, domestic oil production fell and oil imports rose.

Citizens Against Government Waste warns, “Since the 1970s, Congress’ meddling in the energy marketplace has pushed America’s dependence on foreign oil sources of energy from 27 percent to 66 percent today.”

The notion that the revenue from this new tax will generate alternative energy sources is absurd. The federal government has subsidized wind and solar power for decades, with little success. Ethanol production has been subsidized since 1978.

Heritage reports, “Even after decades of special tax breaks, alternative energy still provides only a small fraction of America’s energy needs. …wind and solar energy account for less than 3 percent of America’s electricity because of their high cost and unreliability.”

This not to say there is nothing government can do to improve the situation. But liberal lawmakers would rather make loud noises about profits than make progress. Long ago America should have been engaged in drilling for oil in the Arctic National Wildlife Refuge, but the left has blocked the way by concocting phony stories about how such activity would damage the environment. One way for America to break its addiction to foreign oil is to use its own resources. ANWR contains a total of 19 million acres. Drilling would only take place on the 1.5 million acres along the coastal plain and of that only 2,000 acres would be affected.

Writing for the Heritage Foundation, Ben Lieberman said, “Drilling critics have tried to confuse wildlife refuges with national parks, wilderness areas and other more highly protected categories of federal lands. But national wildlife refuges typically allow limited mining, logging, drilling, ranching or other activities.”

Several years ago the Republican Study Committee released a list of wildlife refuges that support oil and gas production, including Hewitt Lake National Wildlife Refuge, in Montana; Kirtland’s Warbler National Wildlife Refuge, in Michigan; the Lacassine National Wildlife Refuge, in Louisiana; and the Anahuac National Wildlife Refuge, in Texas.

Drilling along the Alaskan coast, in Prudhoe Bay, had been ongoing since the 1970s. The bay is less than 100 miles from ANWR. Since drilling began in that region the caribou herd that migrates through the area has increased from 3,000 to 23,000. The drilling techniques that would be used in ANWR are technologically more advanced than those employed at Prudhoe, reducing further the chance that the environment would be adversely impacted.

Not only does America depend upon foreign imports but the oil that fuels the nation often comes from unstable regions of the world. Nearly 60 percent of the world’s known oil reserves are in the Middle East and 11 percent are in Russia and Venezuela. Drilling in ANWR is a matter of national security.

If Members of Congress are truly concerned about their constituent’s wallets when it comes to the price of gasoline, they have it within their power to eliminate, or at least suspend for a period of time, the 18.4 cent federal gasoline tax. That would have a far more positive impact on the price of gasoline than their irrelevant grandstanding about oil company profits.

One of the reasons prices at the pump are high is because it costs a great deal to turn crude oil into gasoline. America needs more refining capacity but federal regulations are prohibitive with respect to constructing new facilities.

In May 2005, the New York Times reported, “Over the last quarter-century, the number of refineries in the United States dropped to 149, less than half the number in 1981. Because companies have upgraded and expanded their aging operations, refining capacity during that time period shrank only 10 percent from its peak of 18.6 million barrels a day. At the same time, gasoline consumption has risen by 45 percent.”

A September 9, 2006, statement from the American Petroleum Institute, to the Senate Judiciary Committee put the need for new refinery capacity into perspective. The API said if America’s refining capacity is to increase the government must “create a climate conducive to investments to expand domestic refining capacity. …the federal government should take steps to streamline the permitting process to ensure the timely review of federal, state and local permits to expand capacity at existing refineries. …new-source review (NSR) requirements of the Clean Air Act need to be reformed to clarify what triggers these reviews. Some refineries may be able to increase capacity with relatively minor adjustments, but are unsure if the entire facility’s permit review would be triggered – a burdensome and time-consuming process. …Attracting capital for new refinery capacity has been difficult with refining rates of return historically averaging well below the average for S&P Industrials. Over the 10-year 1994-2003 period, the return on investment for the refining and marketing sector was 6.2 percent or less than half as much as the 13.5 percent for S&P Industrials.”

The high price of gasoline is aggravating. Unfortunately liberal Democrats would rather play upon the emotional component of the situation rather than find a solution. As is so often the case, liberals want an issue, not an answer.

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Joseph Bell has hosted a radio talk show and is a former editorial writer/columnist for several Connecticut newspapers. A former liberal Democrat, Bell has not been on the conservative side of the aisle for very long. He voted for Clinton/Gore in 1992. Abandoning the convictions that he had held and defended through adolescence and into adulthood was not easy. Sincere soul-searching and a commitment to distinguish fact from fiction compelled him to accept that liberal ideology was bankrupt.

jbellopedresponse@hotmail.com