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By Robert Rapier on Jun 4, 2012 with 60 responses

How Taxpayers Could Benefit From High Oil Prices

end polluter welfare act
In last week’s post — If We Only Had a Stable Energy Policy — I mentioned three specific examples of legislation under consideration that create uncertainties within U.S. energy policy. These uncertainties increase the financial risks for those trying to develop energy projects — both for conventional fossil-based projects and for renewable energy projects.

One piece of energy legislation that was recently introduced is called the End Polluter Welfare Act. It was introduced by Senator Bernie Sanders, an Independent from Vermont, along with Minnesota Democratic Congressman Keith Ellison.

In my opinion our energy legislation should promote a stable regulatory environment for energy producers, and that a major goal of energy policy should be to reduce our dependence on oil from unstable regions of the world. When politicians change the rules of the game every 2 to 4 years, they create an unstable regulatory environment, and in turn energy developers adopt a more conservative approach to projects. The result is that our dependence on oil imports is higher than it needs to be.

In addition, the fact that a U.S. Senator and a member of the House of Representatives characterize our domestic oil companies as “polluters on welfare” is a symptom of our dysfunctional energy policies. Domestic energy is critical to U.S. energy security, and yet one of our major political parties has declared open war on the energy companies that produce most of that energy. That is at best pandering, and is not a prescription for a successful energy policy.

Instead of going through Senator Sanders’ entire bill, I want to focus on one item from the bill, explain why I believe Senator Sanders is wrong, and propose a better way of doing it.

Section 4 of the proposed bill is Royalties Under Mineral Leasing Act. Subsection B – Leases on Land on Which Oil or Natural Gas is Discovered — reads: “Section 14 of the Mineral Leasing Act (30 U.S.C. 223) is amended by striking 12 1/2 and inserting 18 3/4.” The same amendment is proposed for federal land on which natural gas or oil are known or believed to exist: Increase the royalty from 12.5% to 18.75%.

The premise is straightforward; oil companies are making record profits and hence they should pay more for the oil they are extracting from public lands. This is an understandable sentiment, but as written the bill is short-sighted. It is based on a fundamental misunderstanding of how the oil industry works. It is the same sort of tactic that Hugo Chavez has utilized in Venezuela, and this has in turn caused oil production there to decline by 25% over the past decade. Chavez kept arbitrarily raising royalty rates, and in turn producers invested less and less back into new production. (He also siphoned off profits for social programs; great for his popularity in the short term, but then oil production plummeted because insufficient funds were reinvested into finding and producing oil).

Senator Sanders’ proposal will certainly have populist appeal, but it will almost certainly cause oil companies to reduce their investments in developing new oil and gas. Yet there is a better way that would capture higher royalty rates when prices are high without causing reduced investments in exploration and development.

Many people believe that with oil at $100 a barrel, there is plenty of incentive for oil companies to produce oil even if their drilling incentives are removed and their royalties are raised. The problem is that oil companies don’t make decisions based on the oil price today; they make decisions based on where they project prices to be. And most of them are projecting prices to be lower than they are today. Projects take years to complete, and if oil companies are forecasting $70 oil, a higher royalty, and no drilling incentives — then the likely outcome of the bill will be less domestic drilling. (Of course given the title of the bill, maybe that is the intention). But it does absolutely nothing to address our energy security; in fact it risks reducing our energy security.

On the other hand, I do think that as oil prices escalate, it is fair to increase the royalties on the oil companies. But it needs to be done in such a way that if prices fall, oil companies aren’t stuck with high royalties because of the negative impact on investments in new production. That’s the problem with Sanders’ proposal; it is only a provision for times of high oil prices. If oil prices decline, the provision is a prescription for a rapid decline in domestic drilling. In other words, it isn’t sensible long-term energy policy.

So I would structure an escalating scale of royalties for future contracts. This is one of the things I discussed in my book; how to structure contracts such that citizens will increasingly benefit from oil taken from public lands as oil prices increase. The present royalty — 12.5% — dates to a time in which oil prices were $10 or $20 a barrel. So I would structure future leases to charge 12.5% until oil prices reach some threshold (e.g., $25/bbl) and then ramp up as oil prices increase. It might be reasonable to have a royalty of 18 3/4% when oil prices are at $100/bbl and 25% for oil prices of $150/bbl.

Such a scheme would likely not discourage oil companies from exploring for and producing oil. Oil companies are not planning for $150 oil, and if oil does rise to that level they will profit handsomely from the increase in price. Under the system we have today, they can receive large, unexpected windfalls when prices spike; windfalls that are often brought on by the actions of OPEC or by geopolitical uncertainties. Because of the damaging nature of high oil prices to the U.S. economy, I believe it is reasonable that the damage be mitigated somewhat with a sliding royalty scale. In order to do that, I think it would be wise to earmark the royalty windfall for programs that can directly decrease our oil consumption.

One option would be to put the increased royalties into a separate fund and offer rebates for cars that get high fuel economy. For example, we could provide rebates of up to $2,000 for cars that achieve 50 miles per gallon. This would help consumers afford to improve their fuel economy even if they are struggling with high gasoline prices. With a program like that, the fuel economy of the fleet would probably rise even faster than fuel economy standards require.

Or we could nationally enact a scheme like Alaska’s Permanent Fund, which returns a dividend from the state’s oil revenues back to Alaska’s residents. As oil prices rise to $100 or $150, 5% of the sales price (for example) could be put into a special fund and returned to citizens as a dividend. This kind of program would likely be much more popular with the general public, but unlike a rebate program it does nothing to address the rising consumption that has helped push oil prices to high levels.

Regardless of the specifics of how such a program is implemented, a sliding royalty scale should minimize the risks that politicians will decide to change the rules as oil prices change. Those changes would already be built into the system, and as a result oil companies could build that into their financial models. This system would decrease their risks in the case of lower prices, but would not be a major impediment to new investments in the event of rising oil prices because oil companies are not forecasting $100 0r $150/bbl oil. In the event that high oil prices do occur, that will also mean a sharp rise in oil company profits to help offset the increased royalties.

This is in my view a more comprehensive and long-term energy policy; it addresses both supply side, demand side, and contains provisions to account for changes in oil prices.

Link to Original Article: How Taxpayers Could Benefit From High Oil Prices

By Robert Rapier

  1. By Jerry Unruh on June 4, 2012 at 9:44 am

    I don’t understand how oil companies can project lower oil prices when I assume, as you keep saying, that oil consumption will grow in Asia leading to a “peak-lite” situation.

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    • By Robert Rapier on June 4, 2012 at 11:12 am

      Jerry,

      Most of them continue to assume that oil prices will remain in a cyclical pattern. I know when I was with COP they were still using $40 oil to plan for future projects even as oil reached $60. So today’s projects that are coming online with COP were planned on that basis of $40 oil. Maybe in more recent years they have bumped it up, but all of the oil companies fear a return to $20 oil, and thus they are conservative with their project spending.

      Also keep in mind that most oil companies do not believe in peak oil, or at the least believe it is decades away. I have not heard of any major oil companies forecasting $100 oil, and certainly not planning projects around that number.

      RR

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  2. By Walter Sobchak on June 4, 2012 at 2:03 pm

    Sanders and Ellison are two of the most far left members of congress. I am only surprised that they didn’t get Dennis Kucinich to join them. I don’t think their ideas represent anything out side the fever swamps of their own districts.

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  3. By Jim Takchess on June 5, 2012 at 7:07 am

    A number of times, I’ve heard of projects that cost $60-80 per barrel why are these getting funded?

     

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    • By Robert Rapier on June 5, 2012 at 10:55 am

      Some oil companies will be more aggressive than others, and some may have a tendancy to exaggerate their costs. But the average company isn’t funding projects where production costs are $80/bbl.

      RR

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  4. By Rate Crimes on June 5, 2012 at 7:28 am

    What’s the big hurry?  Why not let our descendants decide how they might wish to use some of our resources.  Taxing the energy companies is an investment in our children.

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    • By Robert Rapier on June 5, 2012 at 10:56 am

      Taxing the energy companies is an investment in our children.

      Not necessarily. That’s the whole point. The outcome may be merely to shift our dependence to foreign producers. That’s why the way they are taxed is important.

      RR

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      • By Rate Crimes on June 6, 2012 at 3:20 pm

        “The outcome may be merely to shift our dependence to foreign producers.” – Robert Rapier

        “shift”?!

        “a major goal of energy policy should be to reduce our dependence on oil from unstable regions of the world.” – Robert Rapier

        Considering the history of U.S. consumption, the reduction of dependence from any source is absurd.

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        • By Robert Rapier on June 6, 2012 at 7:15 pm

          “shift”?!

          The readers here are energy-savvy enough that I don’t have to spell it out in explicit detail. We all know that we depend on foreign oil; my comment is directed at the possibility that we merely swap some of our domestic production for more imports.

          Considering the history of U.S. consumption, the reduction of dependence from any source is absurd.

          Yet that is exactly what has happened. We have reduced oil consumption, and dependence on Saudi Arabia. I did a recent story on that topic.

          RR

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  5. By Ed on June 5, 2012 at 8:32 am

    All tax revenues ultimately come from the pockets of individual taxpayers, regardless of the identity of the first payer. Taxing any business increases its costs and requires it to increase prices to maintain satisfactory profits.

    Reducing federal spending now would be a far better investment in our children’s future.

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    • By Robert Rapier on June 5, 2012 at 10:57 am

      Reducing federal spending now would be a far better investment in our children’s future.

      I don’t think there is any question that this has to happen as well. But we won’t cut spending enough to clear out these deficits. There will need to be some revenue generation, and if it happens as oil prices are spiking it needs to be directed at that problem.

      RR

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      • By Ed on June 7, 2012 at 1:15 pm

        Reduce spending to FY2008 levels. Then we can talk about spending reductions and revenue increases. If the negotiations begin at current spending levels, we’re toast.

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        • By Optimist on June 8, 2012 at 4:48 pm

          ROFLOL!

          AARP won’t allow that: rich old people want their social security and Medicaire, and they want it NOW. And these are the people who have time to vote.

          And for extra credit, Ed, tell us where you’d cut to get to “FY2008 levels”, since the crazy Reds are backing away from their previous claim of accross the board cuts. Is that “FY2008 levels” with or without the bailouts? The wars? Other loopholes we should know about?

          “Reduce spending to FY2008 levels” is a nice phrase. It is also meaningless until you flesh it out.

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          • By Ed Reid on June 11, 2012 at 4:41 pm

            Laugh away, but don’t hurt yourself with all that rolling around.

            From a budgetary standpoint, the bailouts are over and the stimulus programs are over. Repeal PPACA, if the “Supremes” don’t find it unconstitutional. Roll back the 7% “Baseline Budgeting” increases from 2009, 2010 & 2011; and, terminate baseline budgeting. Terminate all new spending programs “funded” since the expiration of the last federal budget; or, offset the spending for those programs by cutting other programs which are no longer necessary or effective.

            Force the Senate to pass a budget for the first time in 3 years, if no other way, by refusing to agree to any continuing resolution beyond September 30, 2012.

            Obviously, you are not a believer in (dis)trust funds and “lock boxes” and the adequacy of SS and Medicare trust fund balances. You probably don’t believe in the Tooth Fairy or the Great Pumpkin either. :-)

            It could be done; but, it wouldn’t be pretty. Some of those who have been “bought” might become “unbought” in the process.

            We are in the mess we are in, in large part, because of an Administration and a Congress which are unwilling to allow the 50% who pay no income taxes to be burdened by the 50% who “don’t pay their fair share”. (I have difficulty understanding how those who pay 100% of the federal income taxes are not paying their “fair share”.)

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            • By Optimist on June 13, 2012 at 6:29 pm

              From a budgetary standpoint, the bailouts are over and the stimulus programs are over.

              Don’t count on it. And I say that with trepidation.

              You mention a bunch of ideas, but few will take flight in DC. The problem is that the party of (so-called) fiscal conservatives, after forcing Mr. Clinton to balance the budget, fell over themselves to hand Mr. Bush (“one of us!”) a blank check book, complete with all the red ink produced on the planet. If you can’t count on them for balancing budgets, leave alone cutting deficits, who is going to do it?

              I have difficulty understanding how those who pay 100% of the federal income taxes are not paying their “fair share”.

              Let me help you with that dim view: if 50% of the country are not paying any federal taxes, it is not because they are have a great free ride at your (and my) expense, it is because they are dirt poor. You can’t get blood out of a stone. These people simply have no disposable income to contribute.

              Warren Buffet keeps claiming that he is paying less taxes (as a percentage of income) than his secretary. I’ve heard many challenges to that view, none of them convincing. Uncle Sam taxes divident income (that rich people earn without lifting a finger) at ~half the rate of income most Americans work for. What are they trying to do: discourage people from working?

              You need a healthy level of inequality to encourage people to work harder and achieve more. At the moment we have WAY more than a healthy level of inequality. That is not good. Untimately it is not sustainable.

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  6. By Cornelius on June 5, 2012 at 11:06 am

    The Alberta Government has just done this: Alberta’s New Royalty Framework sets the royalty rates for oil sands projects. The rate is higher when the price of oil rises. Projects are subject to a lower royalty rate — calculated on gross revenues – until the project has reached payout, or recovered its capital costs. Once payout has been reached, the project is subject to a higher royalty rate, now calculated on net revenues.

    The Alberta Government can certainly not be called “ the most far left”.

    But the article and the discussion fails to address a key point: that increased oil production and consumption is not sustainable, neither environmentally nor financially.

    Financial sustainability means that future generations have the same income from oil royalties as this generation. Norway recognized this and established a fund for oil royalties. The current and any future government may only use the dividends from this oil fund to prop up its budget. This allows future generations to enjoy the same riches this generation enjoys. It also reduces the alignment of government interests with that of oil companies.

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    • By Robert Rapier on June 5, 2012 at 11:19 am

      But the article and the discussion fails to address a key point: that increased oil production and consumption is not sustainable, neither environmentally nor financially.

      Ah, but it does. That’s the whole purpose of directing those royalties into programs that reduce oil dependence.

      RR

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  7. By Tom G. on June 5, 2012 at 1:14 pm

    As I read this posting lots of ideas danced through my few remaining brain cells.  

    + Why can’t we tax gas guzzlers more and use that money for hybrid incentives.  

    + Why can’t we have all of the above: cheap high mileage gas and diesel vehicles, hybrids, plug-in hybrids, hydraulic hybrids and electric vehicles.  

    + Hydraulic hybrids are cheap to manufacture and are well suited to city driving.

    + When are we going to quite making 2 ton antique vehicles and start making 1 ton aerodynamic carbon fiber vehicles.     

    + What makes some people feel like it is necessary to pick a specific technology when everyone knows that different technologies solve different problems.   

    + Why can’t we have a variable tax rate on gasoline based on current pricing.  

    + Why do some networks bad-mouth research and development projects when that has always been the basis for the American dream for the last 200 years?  

    + When oh when will we begin to price gasoline at its true cost which includes things like military intervention.

    + And when are we going do as Robert suggests and apply a variable rate to lease costs?  Sounds like a good plan to me. 

     

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  8. By Eric Energy on June 5, 2012 at 2:01 pm

    As an environmental consultant myself, I understand why oil companies want to be cautious in pricing out future projects.  However, I think the demand in Asia has pushed us into a new age of oil.  Stepping away from any sort of “peak” discussion, current global consumption (and it’s derivative) makes me very dubious that we’ll dip below $80/barrel at any point between now and 2020 (approximate fully operational year for a large-scale operation going into design today).  I think that if you look at the advanced methods and remote geographical locations of oil production now, as opposed to even fifteen years ago, you can tell that oil companies are thinking the same.

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  9. By mac on June 5, 2012 at 6:19 pm

    We have a situation where our ability to produce oil economically is constrained.  The answer is simply to use altermative fuels/energy sources

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  10. By Ed on June 6, 2012 at 9:51 am

    On first principles, I have difficulty accepting the assertion that taxpayers might benefit if more of their money were extracted from their pockets and transferred to others’ pockets.

    My first thought in that circumstance is BOHICA. It never fails! Am I missing something?

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    • By Robert Rapier on June 6, 2012 at 7:17 pm

      At issue is how that money is used. Right now, it comes out of our pockets every time oil prices rise. If we captured a bit more of that rise as tax revenue and directed it toward reducing oil dependence, indeed I believe taxpayers would benefit.

      RR

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      • By Ed on June 6, 2012 at 8:41 pm

        Capturing a portion of an incremental increase in the price of a globally traded commodity as tax revenue without having that incremental tax revenue reflected as incremental product cost throughout the distribution chain would be a really neat trick. How would you propose that could be accomplished in the real world, absent price controls?

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        • By Robert Rapier on June 7, 2012 at 1:41 am

          How would you propose that could be accomplished in the real world, absent price controls?

          By directing the money into programs that reduce demand, it will offset the cost to some extent. If, for example, oil prices were to rise to $200/bbl, either oil companies can capture 100% of that windfall, or the government could capture an increasing portion.

          In any case, I don’t believe if the government take is 5% higher when oil prices are at $200 that oil is going to rise to $210 to compensate.

          RR

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  11. By mac on June 6, 2012 at 8:52 pm

    At issue is how that money is used. Right now, it comes out of our pockets every time oil prices rise. If we captured a bit more of that rise as tax revenue and directed it toward reducing oil dependence, indeed I believe taxpayers would benefit.

    RR

     

    Sure, but revenues that end up in the General Fund,  will never see the light of day in regard to any lesser dependence on oil.

     

    The only way to “get away from oil” is to create a drop-in fuel that can actually compete with oil or perhaps it is to simply abandon oil for other fossil fuels like CNG?  and alternative energy sources such as electricity.

    As long as you assume that the ICE will always hold the upper edge, then of course every fuel or energy source and even attempts at conservation are all a pointless exercise in futility.

     

    Unfortunately, that’s exactly what’s happening.

     

    Bring on the open fuel standard where oil will be obligated to fight a host of competitors

    And even “Electric Aliens”

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    • By Robert Rapier on June 7, 2012 at 1:42 am

      Sure, but revenues that end up in the General Fund,  will never see the light of day in regard to any lesser dependence on oil.

      I would not put it in the general fund. I would earmark it for specific programs designed to reduce oil dependence. I think the easiest one is rebates for high mileage autos.

      RR

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      • By Ed on June 7, 2012 at 4:54 pm

        You might remember that the federal government tried earmarking taxes to specific programs in the cases of both Social Security and Medicare. Then along came the Unified Federal Budget and the (dis)trust funds became mere accounting constructs. The federal Highway Trust Fund is yet another example, as are the highway trust funds and tobacco settlement trust funds in numerous states. Please, should you respond, do not use the term “lock-box”, at least as if it had any real meaning.

        The rat holes available to politicians are very numerous and very deep.

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        • By Tom G. on June 7, 2012 at 6:27 pm

          I have to give Ed credit for identifying the unscrupulous, underhanded and the sometimes seemingly corrupt workings of our federal government.  

          That statement might be a little to radical so how about this instead.  Successfully targeted programs like the Regional Greenhouse Gas Initiative [RGGI] can survive if they have determined LEADERS in place.  Other programs that come to mind are things like the Production Tax Credit [PTC] and Purchased Power Agreements [PPA] many companies and utilities use to control costs over long periods of time. These types of  programs seem to be successful because they have the large lobbying and legal groups necessary to keep the money flowing to where it was dedicated. 

          It also helps if the initiative has multiple sponsors and in the case of vehicle incentives; support might come from many different sources.  Autoworkers, unions, dealerships, environmental groups and people who want to promote renewable energy come to mind.  

          However, I can’t think of ANY program or incentive that is cast in stone and they should not be.  Society changes, technology changes and even commodity availability changes.  Creating a fixed tax credit over time is a wasteful use of tax dollars.  Tax credits like the $7,500 for the Chevy Volt should decrease over time based on many factors.  An annual review would seem like a reasonable time period.    

          Sorry for the long posting.  Very good thought provoking posting Ed.  

           

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  12. By tennie davis on June 11, 2012 at 2:54 am

    Robert,I have ,on occasion, heard you say that taxes may need to be raised along with reduced spending, but keep in mind that tax rate increases do not necessarily raise more revenue. (Laffer Curve).

    cheers

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    • By Tom G. on June 11, 2012 at 1:27 pm

      I did a Google search for “Laffer Curve” and found a Wikipedia article.  The graph[s] shown at the below link indicates that tax revenues do in fact go up until the tax rate reaches about  70%.  I am not an accountant but the current top tax rate for millionaires and billionaires seems to be about 35% which is just about 1/2 the rate this economist indicates would result in additional income to the federal government.  I also believe that millionaires and billionaires NEVER pay close to this percentage since there are thousands of deductions for individuals in this income category.

      Now I am not in favor of increasing taxes on everyone but would rather see a much simplified tax structure like the flat tax.  No one including the IRS can even understand our current tax code and everyone just keeps gaming the system.  If I had a choice there would be three tax rates.  Zero [0%] for people below the poverty level.  15% for people between $50,000-250,000 and $20% for $250,001 [including business and corporations].  No gaming the system, no capital gains tax, no accelerated deprecation, no mortgage deduction, no depletion allowances, no child credits and none of the other stuff special interest groups have managed to con Congress into.  If you want to call it something you can call it a privilege tax; the price for being able to live in the best country on this planet.  

      I welcome opposing views at tomgarven@hotmail.com   If you write please put TAXES in all CAPS on the subject line so your mail does not get deleted as junk.  

      http://en.wikipedia.org/wiki/File:LafferCurve.svg

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      • By Robert Rapier on June 12, 2012 at 6:31 pm

        I also believe that millionaires and billionaires NEVER pay close to this percentage since there are thousands of deductions for individuals in this income category.

        Not only that, but income on investments is taxed at a much lower rate than earned income. To me, it is unfair that a billionaire can pay 15% of his investment income in taxes when I am paying a higher rate. So I definitely agree with the idea of a scale like you mentioned, which covers all income.

        RR

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        • By Ed on June 13, 2012 at 2:03 pm

          Do you believe that a capital gain on the sale of your home should be taxed as regular income?

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          • By Robert Rapier on June 13, 2012 at 2:19 pm

            If I earn $100,000 on the sale of my home, I fail to see any rationale for why that should be taxed any differently than if I make $100,000 from my job. On the other hand, I would probably allow that income to be spread out over the duration of how long the home was owned because it could push you up into a tax bracket in which you really don’t belong.

            RR

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        • By tennie davis on June 14, 2012 at 4:00 am

          Robert, if you tax a billionair much more than 15% on their investments, it would take away their incentive to invest. Companies that need starter money would wither on the vine.Wealth would be destroyed, and tax revenue along with it.

          The funny thing about economics is, when you try to fiddle with it, it always results in unintended consequences.

          You must admit there are no easy answers

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          • By Robert Rapier on June 14, 2012 at 4:20 am

            Robert, if you tax a billionair much more than 15% on their investments, it would take away their incentive to invest. 

            By the same token, if you tax me at much more than 15%, it might remove my incentive to work.

            :)

            RR

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            • By tennie davis on June 14, 2012 at 5:58 am

              Robert, I realize that your comment was sorta tongue-in-cheek, but it’s right on. Lowering taxes helps the economy, it encourages incentive to work, that creates wealth and wealth is taxable and creates more revenue.

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  13. By tennie davis on June 13, 2012 at 2:30 am

    Hi Tom G.

    I have a much different interpretation of the Laffer curve than wiki.

    I may get ridiculed as a crazy Reagan supply-sider, but I think the optimum top tax rate is 20 some %.

    Paul Krugman thinks it’s 70%, and I think Paul Krugman is an idiot.

    Of course I realize that the opimum rate is not a fixed number and most likely moves up or down with ever-changing economic conditions.

    That said, I don’t see how anyone can tell me, with a straight face, that productive people, or productive companies, can grow any wealth, or hire any new employees, if 70% of their money, that they worked hard for, gets confiscated and redistributed to unproductive people.

    I am a poor person by american standards, but fotunately, I pay no income tax at all, so I refuse to engage in class warfare jealousy. I’ll leave that to the clueless economically illiterate occupy wall street crowd, and assorted libtards.

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  14. By Tom G. on June 13, 2012 at 1:15 pm

    Hi Tennie:

    I watched a Link TV special yesterday and the speaker was Paul Krugman.  Maybe 300  people were in the audience who from time to time applauded and laughed at some of his remarks.  I guess that is why he get’s called back for repeat performances.   After all if an economist doesn’t have a few good lines, jokes or radical opinions who would even listen, LOL. 

    However, as I listened two things became clear.  One was that his ideal society seemed to be quite liberal and the second thing was that some of the audience didn’t hold the same beliefs.  Just goes to show how diversified our society is.  

     

     

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    • By Tom G. on June 13, 2012 at 1:32 pm

      I also wanted to include a link to another economist Richard Reich who is also a former Labor Secretary.  The difference between the two individuals is that Richard Reich includes a lot of data in his videos and written presentations which makes it very hard to support the conservative view of ‘lower taxes’ ‘trickle down economics’ stuff.  

      Hope you enjoy the link.  

      http://robertreich.org/

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  15. By tennie davis on June 14, 2012 at 3:13 am

    Guys, don’t kid yourselves, rich people  would love a flat tax.

    According to the  national taxpayers union, as it is now, the top 50% wage earners pay 97.75% of federal income tax. The bottom 50% pay 2.25%. A flat tax would not be nearly as progressive as it is now. Why do you suppose Steve Forbes is a flat tax enthusiast, is he that charitable ;)

    I like the idea of a flat tax because I don’t think it’s fair that 47% of us don’t pay any income tax at all. We have no skin in the game, but we’re still allowed to vote, then when we do vote, we want to redistribute ever more wealth from the top 50%.Guess what will happen when 47% of non paying voters become 51% of voters……..Houston we have a problem;)

    It’s time for everyone to face a hard truth. We have to stop the insane spending, and it’s gonna hurt like hell, get used to it.

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  16. By Ed on June 14, 2012 at 11:37 am

    Robert,

    Funds invested by individual investors in corporate stocks and bonds are after tax funds; and, can be considered to have been taxed at the investor’s marginal tax rate.

    Corporate dividends are paid from corporate after tax profits to the investors who used their after tax income to invest in the corporation’s bonds.

    Corporations reinvest after tax profits back into the business to fund its growth, which then frequently results in an increase in the price of the corporation’s stock, which has been purchased by investors with after tax funds, thus creating an opportunity for the investors to sell that stock at a profit. 

    Therefore, if I invest a portion of the residue of my income after it has been taxed at 35% on the margin and the profits of the corporation I invest it in are taxed again at 35% on the margin and the dividends the corporation pays me are taxed again at 35% on the margin, the government is “doin’ purtty good”.

    I’m with Tennis Davis. We have to stop the insane spending. As Lady Margaret Thatcher famously said: “The problem with Socialism is that eventually you run out of other people’s money.”

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  17. By Robert Rapier on June 14, 2012 at 3:32 pm

    I’m with Tennis Davis. We have to stop the insane spending. As Lady Margaret Thatcher famously said: “The problem with Socialism is that eventually you run out of other people’s money.”

    Well I would be classified most of the time as a fiscal conservative. I am conservative with spending in my personal life, and I belief government spending has long been out of control. So my argument is not that taxes are too low. It’s just that I don’t see why someone who earns a million dollars in dividends should be taxed at a lower rate than someone who earns $100,000 in income.

    As far as the argument that it’s after tax dollars being invested; I hadn’t thought about that but I get double-taxed on after tax dollars all the time. If I start a business with after tax dollars, I don’t get to pay just 15% on the earnings from my business.

    RR

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    • By Ed on June 16, 2012 at 9:27 am

      All businesses are started with after tax dollars, whether those after tax dollars are supplied exclusively by the entrepreneur; or, by the entrepreneur and numerous other equity and/or debt  investors. It is important to note here that, if there are no after tax dollars left, there are no investors and thus no new businesses.

      Businesses pay income taxes on earnings, net of expenses including purchased materials or products, employee salaries and benefits, interest expense and other deductible expenses, at a 35% rate. Dividends paid to equity investors and funds reinvested into the business on behalf of the equity investors with the intent of growing the business are from after tax net profits. Qualified dividends and long term capital gains from the sale of equity investments in businesses are now taxed at 15%. This is the first instance of “double taxation. Then, when those who received the dividends or capital gains spend these funds, they are ”double taxed” yet again through sales taxes, excise taxes, etc..

      Only those who have saved after tax funds and invested them in businesses, either directly or through savings accounts or money market funds, etc. experience the additional taxation event on interest income, dividends or capital gains.  Some of those investors fall into the category of “rich”. Many of them are HENRYs. Others are just frugal individuals saving in anticipation of retiring someday on more than just Social Security. 

      It is also important to note, as even President Obama has acknowledged, higher rates of taxation on capital gains actually reduce federal government revenues from the capital gains tax, as investors choose to delay realizing those gains. The President has acknowledged that his interest in increasing capital gains taxes is driven by perceived “fairness” rather than by a desire to increase federal revenues, though taxation is supposedly intended to raise revenues, not to achieve someone’s concept of “fairness”.

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  18. By Ed on June 14, 2012 at 6:31 pm

    Does the fact that it happens make it right?

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  19. By Ed on June 15, 2012 at 7:18 am

    Optimist on June 13, 2012 at 6:29 pm

    “Dirt poor” might just be a slight exaggeration, especially applied to half the population.

    http://www.heritage.org/research/reports/2011/07/what-is-poverty

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  20. By Optimist on June 15, 2012 at 2:28 pm

    We have no skin in the game, but we’re still allowed to vote, then when we do vote, we want to redistribute ever more wealth from the top 50%.Guess what will happen when 47% of non paying voters become 51% of voters……..Houston we have a problem;)

    Crud that was well done! You got it exactly backwards, Tennie! It is the rich that have too much influence in Washington today. Going from 47 to 51% will make no difference at all: in a proud display of selflessness, many of these people continue to vote AGAINST their own self interest. Now if we could only get more rich guys to emulate them…

    As far as the argument that it’s after tax dollars being invested; I hadn’t thought about that but I get double-taxed on after tax dollars all the time.

    Conveniently, the middle-class and the poor get hit by double tax in the form of sales tax and a host of other taxes on (post-income tax) money they spend.

    The rich, of course, are the only guys with the lawyers and the influence to have their complaints heard.

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    • By Ed on June 15, 2012 at 4:40 pm

      The rich and the HENRY’s are also exposed to other taxes on the money they spend; the middle class and the poor have no corner on that market.

      The US federal government frequently moans about the low savings rate in the US economy, yet they tax any returns to savings; and, they want to increase the tax rates on those returns to savings.

      The US tax code was supposed to be focused on raising the funds needed to support the essential functions of government. Instead, it is focused on encouraging certain behaviors (home ownership, etc.) and discouraging other behaviors (saving and investing, etc.); and, on growing the government and its influence well beyond the essential functions enumerated in the US Constitution. 

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  21. By tennie davis on June 15, 2012 at 8:44 pm

    Optimist, you just won a prize for condensing the most amount of nonsense in the shortest comment possible;)

    Let me restate my previous comment. Roughly speaking 47% of voters (like me) pay no income tax at all, this is countered by the 53% who do pay.When the non-payers become the majority (51%) they will vote themselves ever-more freebies. No tax revenue will be raised. The system will collapse into class civil war.

    Now let’s talk about sales tax, and about me in particular. I pay sales tax, property tax, and a lot of other taxes disguised as fees, but SO DO THE RICH! Since my income is poverty level, rich people pay more sales tax on yachts, luxury cars, and jet fuel purchases in one year, than I’ve paid in sales tax on all the things I’ve consumed in my lifetime!

    I admire the rich,not only do they pay most of the taxes, they also supply most of the jobs.I don’t supply any jobs! Who do you think employs the folks at the yacht factory, the BMW plant? Who pays the guy to dispense al Gore’s jet fuel?

    Opimist, I suspect you are middle class, and that you have good intentions for poor folks like me, but my road to hell is paved with your good intentions. Please don’t try to keep me, and others like me, enslaved to the welfare plantation. My exceptional country’s constitution is the only protection I need for my individual liberty, it allows me, through hard work, not freebies, to become rich so that I can become more productive to society, and I’m working on that;)

    Google Bill Whittle eat the rich.Watch that short video, it may be a little oversimplified, but it helps understand our serious debt problem and explains why the rich are not an endless source of money to be plundered by the ignorant masses.

    Cheers.

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  22. By Ralph on June 16, 2012 at 4:42 am

    1- The jobs being supplied presently have to do with maintaining robotics, many supplied from solar PV energy. Don’t get sucked into the “job creation myth” it is no longer economically sound.

    2-Crying about the sales taxes on yachts, private planes, penthouses, drugs and high priced whores doesn’t bring the tears from the middle class that you are appearing to try to bring. Nice try though.

    3-Voters are bought and paid for from well thought out ads and twisted well spun news stories. The privately owned “free press” has the demographic responses pretty well figured out. Politicians dance to the tunes of the wealthy to perpetuate their purposes and keep the status quo rolling steadily along.

    4-Shall we continue?

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    • By Ed on June 16, 2012 at 7:58 am

      Ralph,

      OK, we all now know that you are angry and frustrated. What would you change and how would you change it? A few specifics would help our understanding.

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    • By tennie davis on June 16, 2012 at 4:24 pm

      Hi Ralph, let’s go over your 4 points.

      1     I’ve never heard of the “job creation myth” you speak of, enlighten us.

      2     I’m not crying about the rich paying sales tax, I’m celebrating it.

      3      Dude, it’s a free market, if you don’t like what the press is selling you, than don’t buy it, but more importantly, if you don’t like the privately owned free press, what press would you suggest, a NOT free press? Hey I know! How about the NOT free press, like they had in the Union of Soviet SOCIALIST Republics. Talk about a bad business model;)

      4     Yes please continue, but you would help your “cause” by being more convincing.

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  23. By Tom G. on June 16, 2012 at 11:16 pm

    I think we may have gotten away from the title of this posting dealing with High Oil Prices but we need something to chat about until Robert posts a new video.  So here we go; taxes are always good for at least a few stimulating postings.  I am posting the qualifications of someone I believe is a subject matter expert in economics and taxation as a starter.  

    “Mr. Robert B. Reich is the Chancellor’s Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers “Aftershock” and “The Work of Nations.” His latest is an e-book, “Beyond Outrage.” He is also a founding editor of the American Prospect magazine and chairman of Common Cause.”.

    Mr Reich is certainly more qualified than me when it comes to economics so here is what he has to say about tax equality [video link].  

     http://robertreich.org/post/25010319397

    Click on the link in the center of the screen entitled ‘Middle class creates jobs”.  

     

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  24. By tennie davis on June 17, 2012 at 3:28 am

    Tom, I’m very familiar with Robert Reich, and of course totally disagree with everything he stands for.I don’t know if you noticed, but at the end of that video, it states clearly, that it’s a paid advertisement for move on.org

    By the way, I don’t think we’re to far off topic. The title of robert’s post started with the words how tax payers can benefit….. I’m just talking taxes;)

    google carpe diem lessons from the laffer curve in the 1920s

    cheers

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  25. By Tom G. on June 17, 2012 at 10:35 am

    Hi Tennie:

    You will find me beliefs someplace between the following 2 positions.  On some I lean left; on others to the right.  Where do you lean? 

    LIBERALS – believe in government action to achieve equal opportunity and equality for all.  It is the duty of the government to alleviate social ills and to protect civil liberties and individual and human rights.  Believe the role of the government should be to guarantee that no one is in need.Liberal policies generally emphasize the need for the government to solve problems.

    CONSERVATIVES – believe in personal responsibility, limited government, free markets, individual liberty, traditional American values and a strong national defense.  Believe the role of government should be to provide people the freedom necessary to pursue their own goals.Conservative policies generally emphasize empowerment of the individual to solve problems.

    The following link is the best comparison I have seen lately of the differences.  Interesting how some of our young people feel and what they are being taught in many of our colleges.

     http://www.studentnewsdaily.com/conservative-vs-liberal-beliefs/

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    • By Tom G. on June 17, 2012 at 10:44 am

      I did some Google searching and found this.

      http://mjperry.blogspot.com/2012/05/lessons-from-laffer-curve-in-1920s.html

      To which I find the contained comment interesting. 

      “Part of the confusion about the relationship between tax rates and tax revenues comes about because we use the terms “raise taxes” to mean both “raise tax rates” and “raise tax revenues” interchangeably (e.g. “raise taxes on the rich“). In reality, “raising tax rates” could result in either “raising tax revenues” or “lowering tax revenues.

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      • By tennie davis on June 17, 2012 at 6:24 pm

        Tom, the comment you found interesting, about the confusion between raising tax rates and raising tax revenue, is exactly why I mentioned it to Robert, in the first place, I just didn’t know how to put my thoughts to paper.

        let me give another example of this “line of thinking”. Let’s say I’m a do-gooder who wants to raise more corporate taxes from  a large solar panel company (because big companies are evil;). companies don’t really pay corporate taxes, they just add  the tax increase  amount, to the price of the solar panel, so it raised  NO REVENUE, it just raised my own prices, talk about shooting your own foot!

        There are millions of examples like this everywhere in the economy!

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      • By Ed on June 17, 2012 at 6:38 pm

        Tom,

        Note that “raise taxes on the rich” is used to refer both to increasing tax rates on existing wealth and to increasing tax rates on the HENRYs (high earners, not rich yet).

        Some would attribute this to sloppy use of the language; others to intentional obfuscation.

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        • By Tom G. on June 17, 2012 at 7:23 pm

           Hi Ed:

          At various times in the past I have found myself using confusing terms.  Over the years I have found that is works best if I understand what the other person really means before I engage my brain or typing fingers.  Nothing more embarrassing than shooting myself in the foot.  I do that WAY to often with my wife and she is not nearly as forgiving as the people on this form, LOL  

          Happy Fathers Day.  

           

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    • By tennie davis on June 17, 2012 at 5:23 pm

      Tom, those are very accurate descriptions of the two diametrically opposed ideas.

      Do you remember some guy say “the gov. is not the solutution to the problem, gov. is the problem” I lean towards small gov.

      “The smallest minority is the individual” (forgot who said that), if that is true, each one of us are protected individually by the constitution, we don’t need big gov. protection, it’s too expensive!

      We sure have become polarized as a nation, makes for some interesting times.

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      • By Tom G. on June 17, 2012 at 6:49 pm

        On this fathers day I remember clearly how my father felt about the need for government.  Even back in the 50′s he was no fan of the way Washington worked but he continued to work for what he believed in.  He believed that Midwestern farmers should have telephones just like city people.  He worked for 10 years and finally got his chance to testify before Congress.  

        The moral of the story is this - We got the phone system because he never gave up on his dream.  He was a strong believer in the moral values we hear in songs like “Made in America” by Toby Keith.  And yes, I still use WD40 and my Craftsmans tools are some of my most prized possessions.

        Happy Fathers Day everyone.  

         

         

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