Sunday, May 08, 2011

Outrage!!! (over less than a penny a gallon?)

In the continuing Red State versus Blue State Ideology Battles, yet another "flashpoint" has erupted over President Obama's proposal to eliminate $4 billion annually in tax deductions for oil companies. From the N.Y. Times, outrage why these tax benefits should continue given record earnings by Oil Companies. And from the Wall St. Journal, their outrage over even considering eliminating oil tax benefits.

After hours of debate and bills introduced in Congress and the countless hours of media "Talking Heads" vilifying either Obama or Corporations and Republicans as the Anti-Christ of Satan -- this topic must be pretty important -- Right?

While we are no fancy Ivy League Economist, we thought maybe we are smart enough to do some "simple math" (with the help of Google, of course). As we understand it, most of these tax benefits are allowable deductions to taxable income (like how us common folk claim a tax deduction for interest on our home loans).

According to the Wall St. Journal article, the effective tax rate for major Oil Companies in 2009 was about 25%. So the $4 billion in allowable expenses, reduced their tax bill about $1 billion (i.e., $4 billion times a 25% tax rate).

Using the wonderfulness of Google, we see that the U.S. uses about 140 billion gallons of gasoline every year. So, spreading $1 billion in taxes over the gas we use equals less than 1 cent per gallon ($1 billion divided by 140 billion gallons).

The toxic ideological talk coming from both Democrats and Republicans is just plain silly -- as keeping or eliminating the Oil Companies' tax benefits will not have any measurable change in gas prices.

Another example of how oil prices are used for political gain is how data is "cherry-picked" by members of Congress and the Media to serve one's ideology. Recently, we saw a graph on how oil prices have increased under the Obama administration -- with the objective to blame Obama's policies for high gas prices. The problem with this presentation was it was neither "fair nor balanced". The below chart is much better in objectively showing oil prices under three Administrations of Clinton, Bush (where record prices occurred), and Obama.

As we have repeatedly said over the years, our oil dependency problem is not a Red State versus Blue State issue, its an American problem that deserves much better effort than our elected members of Congress give us. America can not simply "Drill, Baby, Drill" our way out of this problem.


ecofreund said...

Whether the world likes it or not, the U.S. remains to be the "main actor", thus, it is expected to take the lead in renewable energy adoption as well. Things happening in the US affect the other part of the world. What the US needs is indeed a mutual political will from all sides, not a division due to disparate interests--but that's the hardest part, isn't it?

Chris said...

I think, in general, we as Americans and ultimately the entire world need to be more aware of the need for alternative energy sources. Although this tax break seems insignificant in its effects upon price per unit, the mere idea of President Obama endorsing this action shows environmental irresponsibility on our part.