Happy Holidays (part 2 - The Seven Percent Solution)
The idea of a ‘tax holiday,’ giving relief from the $0.18/gallon federal tax on gasoline is not getting great press. CNN conducted a poll on its website–highly scientific, I know–showing that 73% of those voting think that the plan is simply political pandering. PANDERING. I have to applaud the vocabulary there.
Here’s something that kind of drives me up the wall, and it shows how stupid politicians and the media think we are: Clinton’s plan to fund a tax holiday is to penalize the oil companies that are reaping record profits. This was in response, I think, to Shell reporting something like $8 billion in profits last quarter. It’s a bewildering number. I don’t think anyone can really wrap their brains around what eight billion of anything is. It’s just a huge number. It is so big that we only really measure money with it. I couldn’t find an instance of eight billion anythings on Google (except bushels of grain over several years) except dollars. Google even thought I was looking for millions instead of billions of ‘pieces’ because it’s just too big.
So here’s the problem: oil companies appear to be making ridiculous amounts of money off of us poor, working people who dump half our paychecks into our gas tanks. Hillary Clinton says, let’s take some of that money and give it back to the people! It’s a bad idea and here’s why:
First off, despite Google not believing me when I asked, $8 billion is not that much, when you consider the context. Dutch Royal Shell of America has operating capital of around $114 billion per fiscal quarter. It just costs that much to run the business. It reported $8 billion in profits, which is about 7%. For any company in the world, that’s a decent return. In fact, most multinational corporations make between 6-10% profits every quarter. If you’re not doing that, it’s time to merge and fire all the middle management. In the words of the Shell CEO on CNN last week, “no other industry would be criticized for 7% profits.”
Second, penalizing the oil companies would not necessarily limit the cost of gasoline. Corporations have a duty of loyalty and care to their shareholders’ bottom line, meaning… they have to make up that money somewhere. Let’s say a gas tax holiday would drop the price of fuel a solid $0.15 from it’s current $3.61/gallon for three months (one fiscal quarter). According to some simple math, the United States was consuming approximately 400 million gallons of gas per day. That would cost the oil industry a total of about $5.4 billion. Why, that’s not even the total profits from one company’s quarterly profit! Surely they can afford to subsidize that?
Well, no. I mean, yes–they can afford to do it, but it’s not their responsibility. Our culture has dedicated itself to the free market economy, and in order for it to work we really do have to let it work its own way out. If the government is going to tell these companies what they can and cannot charge for fuel, they start to tamper with the way the market works. Oil companies are no longer free to spend their profits how they wish, will not be able to invest in new markets or research at the same rate, will likely not hire new people or increase the wages of any of its workers. If the US government steps in and controls their profit making ability once, it may happen again. Investors will start to pull their resources from these companies and will destabilize the entire economy worse than it is now. It’ll be the end of the world.
The oil companies aren’t that stupid, though… they’ll just raise their prices to offset the cost of the penalty. After all, they have a duty to their investors…
That argument seems a little flamboyant, but it’s true. If our government were to start micro-managing the economy in such a way, it would undermine the entire system and smack of socialism. And I don’t mean the happy socialism that exists in Sweden, I mean the bad, nasty socialism where there’s no toilet paper anymore.
McCain should stand for lowering taxes, but his plan is flawed because that’s a lot of money the government needs to operate, fix roads, pay border patrol, and so on. Clinton’s plan is flawed because it is either ineffective or highly dangerous. Obama says that no tax holiday is a good one, “there are better ways to cut fuel consumption and control the price of gas.”
Fiscally, this should be eye-opening for critics of Obama, as his policy is rather extremely fiscally conservative: Let the market sort it out. If we want to control the price of gas, the government can encourage people to buy more efficient cars and offer grants for researching and developing alternative fuels. We can let the dinosaur industry maintain itself, and when it becomes a totally useless hulk, the market will abandon it for a better idea. In the meantime, let the evil oil companies have their profits, and if they’re smart they’ll spend some of it designing efficient batteries for electric vehicles, developing air, water, and geothermal power, and raising their workers’ wages (so they can afford to drive to work).
So, don’t be misled by the big numbers. Change your perspective and think about it in context. It is only seven percent.
