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Tuesday, June 10, 2008

Good for the GOP

The Republicans in the US Senate today blocked the Democrat's windfall profits gimmick, oops, tax from getting a vote on the floor. The bill needed 60 votes to get past a GOP filibuster, and only got 51, signalling it's death, for now.

While Barack Obama and others have claimed the GOP sold out the working class, that's simply class warfare rhetoric that wouldn't pass a basic economics test. How exactly does increasing taxes on oil companies help the working class? For those who failed to take, or just plain failed Econ in their sophomore year of High School, here's a hint, it wouldn't lower prices, it would raise them. Raising costs on producers has never lowered prices to consumers.

Some features of the bill sounded good, as campaign year sound bites but also fail the basic econ test. For instance, the idea that part of that tax could be abated by investing the money in refinery expansion. The problem, there is nothing in the bill to reduce the regulatory and legal hurdles that keep refinery expansion from happening quickly. It takes years to get approval, and past the judges, to do such expansion. Since the taxes aren't abated until the money is spent, it doesn't seem like a "win win" for the refiners.

Second, the idea that congress can somehow help lower the price of oil by "curbing speculation" is a folly. The solution was to require more collateral for oil trading on the market, and regulating US investments in energy in foreign mercantile exchanges. The first would just drive trading out of the US. The second would likely lead to a pull of foreign money from our markets, as other countries "regulated" their people trading across borders. Then suddenly this wouldn't look like such a good idea.

The final folly of the bill was the reduction of tax breaks to oil companies. Now, I'm not necessarily in favor of them. But let's think about this logically. The 10 billion or so they are talking about are tax breaks given to oil companies who invest in domestic production, and alternative fuels. Congress would like to take those breaks back, and give them to other people to............ find ways to produce more domestic energy, and look at alternative fuels! ARGHHHH!

Here's a few things to keep in mind about the profits of energy companies. The numbers are big, but the percentage isn't that great. For example, Exxon Mobile and Chevron had profit margins of 10.85% and 8.61% respectively according to Capital IQ. Bank of America on the other hand, had a 21.03% margin, Baxter Health Care, 15.12%, Apple Computer 15.13%, Yahoo!, 14.89%.
Will Congress decide that the profit margins of Apple and Yahoo, being 33% higher than Exxon have to have a "windfall" tax on them, also?

Good for the GOP, it takes balls to stand up in an election year, with high fuel prices, to the demagoguery of the Democrats. If you are one of the (evidently) millions of stooges who think anything in Congress's bill would have actually lowered your price at the pump, I've got a Lake in Central Wisconsin for sale, come see me.

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