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Saturday, October 14, 2006

A Degree In Business, And Can't Do Math

How can you tell when a politician is lying, I mean other than there lips are moving? Easy, when they say the other side is using "scare tactics". If you hear that phrase, you can bet your bottom dollar that the other side is actually telling you the truth, not trying to scare you.

A great case in point is happening in California, with Proposition 87. The proponents (big hollywood money, and tree huggers) are attempting to levy $485 MILLION dollars in oil extraction fees from companys that pump oil in the state.

This week they've brought out Al Gore and Bill Clinton to tell folks how this proposal will help "save the planet" by funding alternative energy research (which is a good thing). Then they go on to say that the opponents of the bill are trying to scare the public by claiming gas and heating oil prices will go up if this passes.

Hello, simple economics here at the door!! If you raise the cost of doing business by a huge amount, expect the business to try and recover some of the costs through the consumer, it's how they remain profitable.

Because of some other, odd laws in California relating to oil, such as only gasoline refined in state can be sold in state, the California consumer would probably bear the brunt of this tax. The proponents don't mention things like that, because common folk will then start doing the math.

There are a few other unintended consequences that will probably be coming shortly if this passes. Expect to see the demise of California's oil fields. Since the tax is on extraction, as huge finds like Deep Jack in the gulf of Mexico come on line, oil companies will just reduce output in California, and replace it with gulf oil. The other alternative is for them to bring down the excess oil from Alaska that is currently sold overseas, and use it to replace reduced output in California. Same amount gets refined and sold in the US, but less extracted in California, resulting in a net tax and transportation savings for the oil company.

The other thing the proponents fail to mention while they tout this huge new tax is that oil companies annually spend about five times more than this tax will raise on alternative fuel research. Shell alone spent over $300 million in 2005 on alternatives, Exxon nearly double that.
So while "hundreds of millions" over the life of the tax sounds huge, it's really only an incremental increase in research dollars; and like most taxes probably wont' bring in as much as they are claiming anyway.

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2Comments:

Blogger shoprat said...

Yeah but their intentions are good (supposedly).

Problem is you can't eat and pay bills with good intentions.

1:09 PM  
Blogger Crazy Politico said...

No, but I heard that the road to hell was paved with those intentions :)

9:07 PM  

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