Soccer Dad

I'm a fuel, fuel, fuel for you

In No profits, no oil, Jeff Jacoby argues that profits is what makes it possible for oil companies to deliver more gas to the public. More than that, he writes that while oil company profits look large, they pale in comparison to what the industry pays in taxes:

We've been down this road before. Under a windfall tax signed into law by Jimmy Carter, domestic oil production plummeted by an estimated 795 million barrels, while imports of foreign oil surged. Congress had anticipated windfall tax revenues of $393 billion. The actual take: just $80 billion. Like so much else associated with the Carter era, the windfall-profits tax was a counterproductive flop. Do Democrats really believe a new dose of Carternomics is going to make today's economy stronger?

If you want to see a real windfall, take a look at what Big Oil pays in taxes. The 27 largest US energy companies forked over $48 billion in income taxes in 2004, $67 billion in 2005, and more than $90 billion in 2006 - an 87 percent increase. Since 1981, the Tax Foundation calculates, the oil industry has earned a cumulative $1.12 trillion in profits - but it paid a cumulative $1.65 trillion in taxes (add another half-trillion to account for taxes paid to foreign governments).

For most of the 25 years between 1981 and 2006, says foundation president Scott Hodge, taxes collected from oil companies by federal, state, and local governments were nearly double the industry's profits in any given year. For all the clucking over ExxonMobil's $10.9 billion in profits last quarter, little attention was paid to its total tax bill in the same period: more than $29 billion.

George Will, in The Gas Prices We Deserve points out that Congressional meddling is one of the factors that has led to high oil prices in the first place:

Can a senator, with so many things on his mind, know so precisely how the price of gasoline would respond to that increase in the oil supply? Schumer does know that if you increase the supply of something, the price of it probably will fall. That is why he and 96 other senators recently voted to increase the supply of oil on the market by stopping the flow of oil into the Strategic Petroleum Reserve, which protects against major physical interruptions. Seventy-one of the 97 senators who voted to stop filling the reserve also oppose drilling in the Arctic National Wildlife Refuge.

One million barrels is what might today be flowing from ANWR if in 1995 President Bill Clinton had not vetoed legislation to permit drilling there. One million barrels produce 27 million gallons of gasoline and diesel fuel. Seventy-two of today's senators -- including Schumer, of course, and 38 other Democrats, including Barack Obama, and 33 Republicans, including John McCain -- have voted to keep ANWR's estimated 10.4 billion barrels of oil off the market.

So Schumer, according to Schumer, is complicit in taking $10 away from every American who buys 20 gallons of gasoline. "Democracy," said H.L. Mencken, "is the theory that the common people know what they want and deserve to get it good and hard." The common people of New York want Schumer to be their senator, so they should pipe down about gasoline prices, which are a predictable consequence of their political choice.

Nor were the reasons for stopping the drilling in ANWR (or elsewhere) reasonable. For example:

ANWR is larger than the combined areas of five states (Massachusetts, Connecticut, Rhode Island, New Jersey, Delaware), and drilling along its coastal plain would be confined to a space one-sixth the size of Washington's Dulles airport.

Now that Congress is considering legislation that will likely raise gas prices even more, Fred Barnes writes that High Gas Prices May Work for GOP:

Where Republicans have succeeded is in selling their solution to soaring gas prices: drilling for oil offshore and on federal lands, areas now off limits. In the Gallup survey, support for drilling in precisely these areas jumped from 41 percent in 2007 to 57 percent in May.

So Republicans have an issue to exploit. And it's one on which Democrats are especially vulnerable because they promised in the 2006 campaign to offer a "common sense" plan to curb gas prices. They have yet to produce one, and the price per gallon of gas has risen by more than $1.60 since Democrats took control of Congress in January 2007.

Democrats have also insisted--unwisely, it turns out--on pushing to enact a global warming bill that would further boost the price of gas and rake in trillions of dollars in new revenue. This might have made sense a few years ago,

but not in the days of public anger over $4 a gallon gasoline.

As a result, an amazing role reversal occurred on Capitol Hill last week. Republicans, once fearful of the climate change issue, suddenly demanded more debate in Congress on global warming legislation. Democrats, who had earlier promoted the legislation as a top priority, turned squeamish and quickly dropped the issue before it could do serious political harm.

(For more on the "Cap and Trade" legislation see Robert Samuelson or the WSJ.)

However there is one problem with a national Republican strategy on this issue: the top of the ticket:

But, John McCain is a problem. He opposes drilling for oil in the Alaska National Wildlife Reserve (ANWR), though he has come around on increased domestic production in other areas (except off the coast of Florida). Flipping on ANWR may be too much for McCain, though doing so would be consistent with his national security argument against spending billions for Middle East oil.

Or McCain could do an about face and say upon reviewing new evidence, he sees that the failure to allow drilling in ANWR was a mistake. Furthermore, he could insist that his environmental record gives him credibility. His demonstrated concern for the environment in the past demonstrates that he's not just in the pocket of the oil industry. And he could argue that what we need in Washington is a politician who is not just wedded ideologically to issues but who shows the capacity for change when convinced that circumstances have changed.

It won't be an easy argument to make, but it might be worth trying. Given that the economy is likely to be a bigger issue than Iraq in November, it is an issue that the Republican need to make if they aren't going to relegated to even more irrelevance in 2008.

Posted by SoccerDad at June 8, 2008 8:00 AM | TrackBack