President Obama needs to take Lemonade Economics 101.
Tell a 10 year old that the federal government is going to make him pay 25 cents for every glass of lemonade he sells at his corner stand, and he will say he'll have to charge an extra quarter per serving -- or simply close up shop. He certainly won't say he'll be persuaded to lower his prices.
But President Obama wants us to think he can compel oil companies to lower the pump price of gasoline, by eliminating business tax deductions for certain major companies, and raising their cost of doing business by what he admits would be $4 billion a year.
In reality, the companies will have to pass the tax hikes on to their customers -- further increasing pump prices.
And yet Senate Democrats recently offered an amendment that would eliminate various tax deductions for five major oil companies, turn the supposed savings into subsidies for wind turbine, solar panel and electric car makers – and use any leftover crumbs to "pay down" our skyrocketing budget deficit.
The ploy needed 60 votes – but got only 51, despite the president's vocal support. "Members of Congress," he said, "can stand with big oil companies, or with the American people."
However, the American people are no longer buying the partisan rhetoric.
They increasingly understand that new taxes and restrictions on oil companies are not in their best interest. In fact, a recent Harris Interactive poll found that more than 80% of U.S. voters support increased domestic oil and gas production, to create and preserve jobs, lower pump prices and increase government revenues.
They understand that only 12% of what they pay for gasoline goes to oil companies for production, refining, marketing and distribution. Another 12% is state and federal taxes. Fully 76% is determined by world crude oil prices – and thus by global supply and demand, and confidence or fear about world events.
Americans understand that eliminating tax deductions for expenses incurred in producing and refining oil is the same as imposing new taxes. Those taxes would result in curtailed drilling and production, reduced royalty revenues, worker layoffs, still higher gasoline prices, and increased costs for everything we grow, make and transport with petroleum. Blue collar, poor and minority families would be hurt worst.
Every U.S. business claims deductions for new equipment, facility depreciation, utilities, payroll, research and other expenses. This ensures that businesses, like individuals, recover their costs and get taxed only on their net incomes.
Five oil companies should not be singled out and punished as the sole exception to this rule.
Legitimate expense deductions are very different from subsidies. Subsidies amount to government taking money from individuals and profitable companies, and transferring it to politically favored companies and products that could not survive without perpetual support.
The system is even more insidious when the subsidized entities return substantial portions of their taxpayer largesse as campaign contributions to President Obama and other politicians who arrange the wealth transfers.
Other facts make the situation more disreputable still. "Alternative," nonhydrocarbon energy is often justified by assertions that we face imminent man-made catastrophic global warming. In reality, average global temperatures, storm frequency and intensity, sea levels and other indicators provide no empirical evidence that this is so.
Wind, solar and biofuel energy are also justified by claims that we are running out of oil and gas. In fact, America is blessed with vast proven petroleum reserves, and even greater undeveloped prospects that our government has made off limits. The natural gas and hydraulic fracturing revolution is merely a hint of the energy, jobs and revenues Americans could produce, if certain politicians would end their obstinacy.
"Renewable" energy is further justified by claims that petroleum "keeps us trapped in the past." In truth, we need to worry about the present, especially our unemployment and our unsustainable Grecian debt. Oil and gas provide 60% of America's energy. By contrast, despite untold billions in subsidies, wind and solar combined still provide barely 0.60% – and are unlikely to do much better for decades to come.
Oil companies make a lot of money by producing, refining and selling enormous quantities of fuel and other petroleum products. But they pay billions in taxes and royalties – and produce real energy.
Wind, solar, algae and switchgrass companies take billions in Other People's Money. They pay virtually no taxes, and produce zero to minimal energy.
Expecting that higher taxes on oil companies will produce more oil at lower prices is like saying we will get cheaper bread, and more of it, by eliminating tax deductions for bakeries' electricity and equipment.
American voters and consumers understand this. It's time our elected officials and unelected bureaucrats did likewise.
Driessen is senior policy adviser for the Committee for a Constructive Tomorrow and Congress of Racial Equality.
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