How To Really Screw Up Oil Prices
First, the micromanagment. Because the IRS obviously is the wrong institution to audit tax records, the Senate Finance Committee has demanded 5 years of tax records from the 15 largest oil and gas companies.
While I'm all for holding companies, and individuals, to the fire when it comes to paying their taxes, that's the IRS's job, not a congressional committee's. Just more show to make the public think Congress is doing something, as I mentioned in "Politics as Usual".
Now, how to screw up prices, the Senate is looking to require different accounting practices for oil held in inventories by oil companies, or at least the 5 biggest. The justification is an extra $800 million a year in taxes for the next 5 years.
Congress, of course, assumes that the companies won't change the way they operate to avoid the new tax. Of course, Congress doesn't ever consider what others will do when they do stupid things. Instead of paying hudreds of millions in extra taxes for their inventories, they'll just reduce them to bare bones levels to avoid it.
What does this new accounting mean to you, the consumer? Well, next time there is a hurricane and supply is interrupted, the buffer that oil companies try and maintain won't be there. So instead of $4.00 you'll see higher prices, and lines as more stations run out of gas. Of course, when that happens Congress will be up in arms wondering why they aren't maintaining the inventories.
There is of course another option for the oil companies, sell their product in countries more tax friendly to them. In a very tight supply market like we have, Japan, China, India, and other countries would gladly have the companies keep their reserves in their countries. And again, we'd come out the losers. But Congress wouldn't realize that, either. While they are good at passing laws, they never seem to have studied the law of unintended consequences.
Robosquirrel linked with "What You Don't Know Hurts Everybody"
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