Posts Tagged ‘tax subsidies’

Barack H. Obama’s Legacy, Part 2

PDF —>  ObamaLegacyPart2

The “Affordable Care Act” (ACA), commonly known as “Obamacare”, does exactly the opposite of what its title claims, as is typical of many government initiatives.  It promotes evil more than most legislation: it violates several provisions of the Constitution, and it fails to achieve even its most basic objectives.

It violates the Constitution in several ways.  First, it contains provisions by which a taxpayer has to prove to the IRS that he has purchased health insurance; that is a violation of the right to free entry into contracts because the government is forcing a citizen to buy something even if he would rather not.  Under the Tenth Amendment, contracts issues reside solely within the power of the States.  Secondly, every IRS employee has access to these records in violation of the Fourth Amendment freedom from arbitrary searches.  Third, by failing to provide the proof of insurance, the citizen is liable to pay a penalty, later ruled a tax by the Supreme Court.  That apparently innocuous ruling made the entire section unconstitutional since the ACA originated in the U. S. Senate, whereas all tax bills must originate in the House of Representatives.  This proves, if it proves anything, that even members of the Supreme Court cannot or will not respect the Constitution.  Fourth, the ACA requires the citizen to buy coverage for a product which may violate his religious beliefs, since every insurance package meeting the ACA requirements must provide coverage for abortion and birth control expenses.  Thus, since insurance is merely pooling risk, everyone has to share in the cost risks of abortion in violation of the First Amendment respect for religion.  Fifth, doctors are permitted to ask patients about firearm ownership and include their responses in their permanent medical history; another clear violation of the Fourth Amendment as well as being prejudicial to the Second Amendment.  In the future, said records may constitute the basis of an arbitrary sweep to confiscate all privately owned firearms.  Sixth, it does not apply to every citizen equally since many exemptions, exclusions, and benefits have been given to some categories of individuals and groups while depriving the other citizens; this violates the equal protection portion of the Fourteenth Amendment.

It should come as no surprise the ACA has and will continue to fail in achieving its claimed objectives.  It contains the seeds of its own destruction the same as every other welfare legislation.  In typical welfare legislation, a non-working citizen and politicians decide how much a third person, the working man, is to pay in taxation to support those who are not working.  There is no end to demands made by the non-working, and welfare benefits have traditionally increased over time, with commensurate tax obligations.  Likewise, ACA has no effective cost containment: the doctor and patient decide how much a third entity, the insurance company, is to pay, nor a fourth entity, the working person with health care is to pay in taxes to provide subsidies to the others.  Secondly, there is no requirement for doctors and hospitals to publish their prices for routine procedures, or even room costs; hence the costs are different depending on what type of insurance one has. Secret pricing will always tend to increase costs.  Third, it restricts competition because a citizen can buy insurance only from those companies operating within a State despite the fact that the mandate itself is of federal nature.  Restricting competition will always increase costs.  Fourth, some people simply cannot afford to buy health insurance, and they must (and should be) be treated at public expense; the ACA does not eliminate the charitable and publicly-funded institutions and the costs thereof.   The combined effects of these came about as expected: fewer choices of plan as insurance companies exit the program; constantly increasing insurance premiums, steadily increasing deductibles, and fewer choices of doctors and hospitals.  The ACA is on the cost and quality death spiral; some claim that it was done deliberately in order to make the excuse for universal government-run health care.  If you like what has been happening at the Veterans Administration, you’ll like universal care.

But the most pernicious aspect of the ACA is that it can never be repealed or significantly modified.  History shows that once a welfare provision is granted, it cannot be taken back.

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On Tax Subsidies for Oil Companies

On Tax Subsidies for Oil Companies <== PDF version

The U. S. Senate voted on 17 May 2011 against a bill that would have abolished about $20 billion over the next ten years in various tax subsidies to the major U. S. oil companies.  Most of the Democrats favored ending these subsidies, but the bill failed 52-48.

There was a hearing before the Senate on 12 May, in which politicians berated several oil company executives, ostensibly for reporting large profits in the last quarter.  Exxon-Mobil, for example, posted a quarterly profit of approximately $11 billion.  The politicians get away with this nearly-annual grandstanding because $11 billion is a lot of money, and oil companies are easy targets for those looking to score easy points with the public.  After all, the public is not particularly pleased with the price of gasoline at about $3.85 per gallon of regular.  But as usual, in all this posturing, most of the facts about the price of gasoline are left out.  It turns out that a significant fraction of the price paid at the pump is actually federal and state excise taxes.  While the federal excise tax is about 18 cents per gallon (14 cents for the ethanol mixed types), the amount of state excise tax varies by state from 26 cents per gallon in Alaska to 66 cents per gallon in California.  Here is the approximate breakdown of the components that go into a price of a gallon of gas at today’s prices, using a median value of 48 cents per gallon for state excise taxes.

63.5%: the total price of crude oil, including exploration, leases, research and development, production, logistics, royalties, and income taxes on gross profit

12.5%: federal and state excise taxes

8%: transportation (from mining site to refinery, andrefinery to gas station)

9%: refining crude into gasoline (or diesel)

0.5%: gross profit to retailer (out of which he must pay his income taxes)

6.5%: net profit to oil company

We see here that the total taxes imposed by the federal and state governments exceed by a margin of about 2:1 the profit to the oil companies.  Likewise, the oil companies have considerable expenses: they have to pay for the leases, and then the royalties; then they pay income taxes on the gross profit, all of which is of course built into the price of the raw material.

Keep in mind that the U. S. consumption of gasoline is about 140 billion (140,000,000,000) gallons of gasoline per year.  When you think of it, this is a lot of work.  The oil companies and the others in the supply chain have to locate it, drill it, transport it in special ships or pipelines, refine it, then store it and ship it again in special containers.  If gas is $4.00 at the pump, the oil company net profit is about 26 cents.  But it comes to seemingly big oil company profits; 26 cents on 140 billion gallons is $36 billion annual (on sales of gasoline alone).

Senator Harry Reid admitted that repealing these $4 billion annual subsidies will have little short term affect on the price of gas, which seems certain.  It seems to me that these tax subsidies should be repealed, but not out of envy at oil company success or some nebulous populist sentiment that the Democrats continue to advance.  I favor a repeal of these simply because in the long run, they serve to distort the true price of a gallon of gas.  First, they no doubt come with a long series of conditions and regulations, which may serve to distort the priorities of the oil companies.  It is no secret that many decisions are made with a view to how a corporation’s tax position will be affected, even if those decisions are contrary to what is in the long-term business interest.  If the long-term interest of the oil companies is to provide reliable energy at a sustainable profit, it seems that the interest of the people coincides with the oil companies, since a profitable economy depends on energy. Second, a general support by the taxpayer distorts the true return on investment; it may affect the allocation of research and development, which in turn may cause the oil companies, experienced in many aspects of energy production, from developing alternates.  Third, these subsidies politicize the basic function of capitalism; if the taxpayers end up subsidizing corporations, their representatives (Congress) will assume powers to inordinately regulate their businesses; I refer to the political game of what public leases can and cannot be developed.  It is not certain that such meddling benefits the taxpayer (witness the present price of gas).  Last, I am opposed to any corporation using its influence to weasel special favors from the politicians at taxpayer expense; why should a corporation receive welfare payments from the taxpayer?  But I make this statement in general for all corporations, not just the oil companies.

I mentioned “grandstanding” earlier, and now I give an example.  At one point in the 12 May 2011 hearings, Senator Jay Rockefeller told the oil company executives that they were “out of touch”: that although they were “good people”, flying around on Lear jets and the like resulted in those oil executives becoming too isolated from the sentiments of his constituents, namely the average folk of West Virginia.  This is a rather odd charge from the great-grandson of John Rockefeller of Standard Oil fame.  But in his defense, at least he did not accuse the oil company executives of engaging in every kind of corrupt practice and driving all the honest competitors out of business the way his great-grandfather did.

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