Wednesday, July 30, 2008

Oil's Slippery Logic

Bush, as usual, is blaming his incompetence on Congress, alleging gas prices are their fault. Congress is actually doing the American people a favor by not allowing such misguided policies to continue, and finally doing what Jimmy Carter recommend we do during the oil crisis of the 1970s – trying to get off oil!

The oil companies have millions of acres of land already, federal land leased to oil/energy companies, which they are choosing not to explore nor drill for oil. The latest claim that they must be given more land and allowed to drill in ANWR is ridiculous .

As Harry Reid, the Senate Majority leader, details: 33.5 million outer continental shelf acres are not being drilled; 34.2 million onshore acres under lease are not being drilled; there are 7,740 active leases in the outer continental shelf and only 1,655 in production; there are over 41,000,000 acres in the outer continental shelf that have been leased for drilling, yet only 8,123,000 acres are in production.

The answer isn’t more tax breaks for oil companies based on the lame excuse that they need such for competitive reasons or because they need such for exploratory purposes, nor is it spending more money drilling every possible piece of land on the planet. The answer, sorry to say, is a lifestyle change for much of the planet (walking more, driving less, consuming locally, etc.) and investment in alternative energies. Jeff Rubin informs, “For the past half century, America has spent the bulk of its infrastructure money on building highways.” This has led to us sprawling outward and driving more, subsidized by cheap gas. Part of the solution to our problem is denser living and public transportation.

Jeff Hooke and Steve Wamhoff declare, “Among the largest five oil companies, less than 8 percent of profit goes to exploration for new oil fields. In the top five oil companies, managers have actually directed most of their excess cash to dividends and stock repurchases, both of which drive up the companies’ share prices and the executives’ stock option values.” And, the claim by the oil industry of an interest in alternative energy – from 2000 to 2005 the industry spent $1.2 billion on alternatives to fossil fuels; the industry earned $383 billion over this same period.

Subsidized (regarding oil companies) implies that gasoline prices paid by consumers do no reflect the full economic cost to society. Some direct and indirect public subsidies are reduced corporate income taxes, lower than average sales taxes on gasoline, government funding of programs that primarily benefit the oil industry or motorists, and hidden environmental costs caused by motor vehicles. As Doug Koplow asserts, “Tax subsidies are the result of selective tax legislation that benefit particular groups of people or industries in the economy.”

States using combined reporting are capturing more of their fair share of taxes from oil companies. Otherwise, companies shift costs and profits between subsidiaries in different states to avoid taxation or lower their rate as much as possible.

A Union of Concerned Scientist's report lists a battery of oil industry subsidies:

  • Oil industry taxed at 11 percent ($2 billion per year benefit)
  • Low state and local sales tax rates on gasoline, indirect subsidy exceeding $4 billion per year
  • Direct government funding of oil and motor vehicle infrastructure and services costing $45 billion a year
  • Oil-related health and environmental damage, roughly $232 billion annually

Douglas Koplow and Aaron Martin of Industrial Economics found:

  • Maintaining the Strategic Petroleum Reserve costs $5.4 billion
  • Tax break for domestic oil exploration and production $2.3 billion
  • Support for oil-related exports and foreign production $1.6 billion

The Alliance to Save Energy detail that state and local governments taxed gasoline at about half the rate as other goods resulting in an estimated $2.7 billion revenue loss from gasoline sales.

Mark Zepezauer and Arthur Naiman explain how oil companies are also allowed to deduct 15 percent of the gross income they derive from oil and gas wells from their taxable incomes (the oil depletion allowance), and continue to do that for as long as those wells are still producing. Other shameful tax allowances include the enhanced oil recovery credit and the percentage depletion allowance, among many other tax breaks.

Citizens for Tax Justic further note, “Oil companies can write-off so-called intangible drilling costs, that is, much of their investments in finding and developing domestic oil and gas wells, immediately, even for successful wells.” Another gimmick is passive income limitations, whereby, “the working interest holder who manages on behalf of himself and all other owners the development of wells and incurs all the costs of their operation, may use oil and gas losses to shelter income from other sources.”

The Institute on Taxation and Economic Policy observe that the oil and gas sector is the nation’s lowest-taxed industry, paying an effective income tax rate of only 5.7 percent.

And, comparatively speaking, the U.S. still has some of the cheapest gas on the planet. Of 155 countries surveyed for a CNN Money article, U.S. gas prices were the 45th cheapest. Most of Europe has prices hovering around $8 a gallon. Our cheap gas prices are primarily responsible for our love affair with SUVs, our oversized McMansions, and our unnecessarily long commutes. The U.S. federal tax on gas is 18 cents per gallon, low by global standards. Since 1980, oil use in the UK has stayed flat, in France its dropped 17 percent, but in the U.S. it’s gone up 21 percent.

For Further Reading:
Oil Slickers: How Petroleum Benefits at the Taxpayers Expense.

Tuesday, July 15, 2008


In the most recent of his many declarations of incoherence, our unfit leader said the economy is "basically sound."

Which is why banks are failing, automakers and the airlines are shedding jobs, bankruptcy and unemployment are on the rise, and bailouts are aplenty.

I know this guy (including his administration) is an asshole...but how much shit can one man produce?

Leave it to those know-it-all, ivory-tower liberals : Ben Bernanke, Federal Reserve chairman and former Princeton economics professor, testifying before the Senate Banking Committee, gave a more nuanced and reality-based assessment. He noted that consumer spending and exports were moving at a sluggish pace, the housing sector is continuing to weaken, inflation is inching upward, and commodity prices are rising.

Jon Stewart puts it into perspective nicely here.

Saturday, July 5, 2008

Tax Burden Shifting: Exemptions

Exemptions are a subtle scourge on our public institutions and a devious tax avoidance scheme written into state statutes by corporate lawyers working alongside on-the-take state legislators. This corporate welfare is yet another scam of planners, site selection experts, business interests, and others who falsely claim that without such an exemption certain businesses would be unable to accomplish a host of things -- remain profitable, support a certain level of workforce, etc. The key to getting an exemption is showing your business is benevolent in some fashion or another. But, as with such vague statutory language, this loose definition has been twisted to the benefit of businesses being able to avoid taxes with far-fetched explanations of what makes them benevolent, and also unfairly subsidizes them competitively against another similar business not receiving the exemption. Another way to get an exemption is to simply have your lawyers and lobbyists pressure state legislators to simply write it into the statutes (sections 70.11, 70.111, and 70.112).

Nearly a third of all the property in the City of Milwaukee is exempt -- roughly $6 billion worth of property that is not taxed! Barbara Miner informs, "Wisconsin now has approximately 16,000 exempt private properties, with a value of $21.7 billion."

The Wisconsin Department of Revenue, in State Tax Incentives For Economic Development In Wisconsin, details the numerous tax incentives available in Wisconsin.

Annysa Johnson reports, “The Congressional Budget Office estimated the value of tax exemptions for hospitals nationally in 2002 at $12.6 billion.” A report by the Institute for Wisconsin’s Future found, “billions of dollars worth of property goes untaxed because it is owned by not-for-profit hospitals and medical centers…many of these hospitals generate millions of dollars in annual income and pay their top executives salaries comparable to corporate executives.”

The Wisconsin Public Service Corporation explains, “Commerical customers with residential electric or natural gas [a storefront with an apartment above it] are tax-exempt from November through April for the portion of energy used for residential purposes…Non-profit organizations [operated for religious, charitable, scientific or educational purposes or for the prevention of cruelty to children or animals] are tax-exempt year round for electric and natural gas use.”

Credit Unions are tax-exempt institutions. As even the Wisconsin Bankers Association states, “To the extent that credit unions use their tax exemption to lower home lending rates, federal and state income tax exemptions are subsidizing borrowing by high-income households.” They find this exemption will cost, over the next 10 years, $400 million in Wisconsin, and $31 billion nationally.

A few of those with property tax exemptions written right into the state statutes are: machinery and equipment used in manufacturing, farm inventories, computer hardware and software, and tax increment districts. In a recent decision, City of LaCrosse v. Wisconsin Department of Revenue and Gundersen Clinic, the Wisconsin Tax Appeals Commission ruled that a host of categories of computerized medical equipment is exempt from property tax.

Those enjoying sales tax exemptions: manufacturing machinery and equipment; manufacturing consumables; pollution abatement, waste treatment and recycling equipment; production fuel and electricity. Steven Walters notes, “The sales tax [in Wisconsin] is expected to bring in $4.2 billion this year. It is the second biggest source of state tax collections, trailing only the $6.4 billion personal income tax.” He also lists the costs of certain exemptions: computer services $136 million; legal services $113 million; advertising $103 million; personnel services $79.4 million; architectural engineering and surveying services $69.2 million; management consulting and public relations $64.1 million; and accounting $59.5 million.

The importance of a good manufacturing base to our economy is obvious, as is the importance of recycling to our environment, etc. But if the market has decided that these aren’t important things and the government must support these endeavors, then we should at least also be guaranteeing these are well-paid jobs with health care and pension plans. If we’re going to be in the business (of whichever business we might be subsidizing), we should have it on our terms and have these be solid jobs that allow the workers to be happy, productive, and fairly compensated. Consequently, they are able to support their local economy (through purchases). This multiplier effect of locally earned and spent money ripples through the economy and creates jobs and stable communities.

There are a host of “business incentives” (welfare for the rich) in Wisconsin: Economic Development Zones with development zone credits, Tax Incremental Districts with infrastructure improvements financed by tax increments, and Technology Zones with tax credits for high-technology businesses locating in the zone. Granted some of this development would not occur without the subsidy. Therefore, that is a good investment if it occurs in a blighted or declining area. But sadly too often developers, real estate magnates, and builders use this welfare to line their pockets rather than making a catalytic investment (reproducing through the local economy), which would be much better for the long-term health of their city and economy. They build whatever is easiest and will return the quickest buck. They're looking to line their pockets with the largest amount of money in the shortest period of time. They're not trying to develop a sustainable, bustling, safe city environment.

The inequity in the tax burden is at a breaking point. Workers cannot bear the brunt of this burden much longer. The economy is in a recession as this is being written, and we may be headed for another 1929-style depression. Corporations have written the tax code to their benefit. Their share of taxes is minuscule and declining. Their, in essence, looting of public dollars has ramifications on our ability to maintain: parks, libraries, public transportation, sewage, wetlands, pollution, poverty, and employment – to name a few. It has ramifications on everything we do and how we live.

This is the workers' money they are stealing. Without the productive capacity of all the workers in the world applying their craft there would be no product or service to sell. They make the profits and standard of living we all deserve possible. Sadly, they are being exploited. I’m sure we’d all prefer a higher floor for the least among us, rather than a subsidized ceiling where the already-rich take from those working their asses off to make ends meet. Our inattentiveness and inaction with regards to this growing inequality is to our own detriment. Even the middle class is now being squeezed into a paycheck-to-paycheck lifestyle. This is a dismal fact and an abomination for a wealthy, highly-educated country like America.

Why is this? To recapitulate -- about a third of the land and property the rich/well-represented own is exempt from taxation. Capital gains, which are mostly claimed by the rich, are taxed much lower than income. The tax code has a hoard of loopholes, deductions, and write-offs, which benefit the rich. So, the basic story is: workers are working longer, harder, and producing more; but they aren’t sharing in the gains. And all those gains the CEOs and executives are making off Labor’s production are not being completely or fairly taxed, if at all. So we’re making less and having to pay for more while a few greedy bastards stockpile the treasure of our exploited labor.

Jack Norman calculates, “Thirty years ago, residential property accounted for half of all state property taxes. Today, homeowners pay 70 percent of all property taxes, as the business contributions have dropped…The poorest homeowners (incomes below $15,600) paid more than 14 percent of their income in state and local taxes. The richest homeowners (incomes above $70,000) paid about 10 percent of their income in state and local taxes.”

Fred Mohs, former regent with the University of Wisconsin System currently on the board with Madison Gas and Electric, in Barbara Miner's Tax Exempt Milwaukee Magazine article, contends, "The only people left to pay were the peasants and the merchant class, and they eventually solved the problem by cutting off the heads of a lot of people."

Friday, July 4, 2008

Social Security Program Solid

Comptroller General David M. Walker and Rep. Paul Ryan sure have been getting a lot of positive ink from the Journal-Sentinel lately. It’s a shame none of it is warranted. Ryan has wrapped the old Republican sow’s ear in ribbons and bows and is trying to sell it as a silk purse (more here and here). And, Walker is trotting out a supposedly, as far as the Journal is concerned, Paul Revere moment about our nation’s debt, in which the Journal’s latest editorial extrapolates into a Social Security and Medicare horror story.

For starters, Social Security is fine. For the mainstream media to keep pushing these ominous threats about Social Security's impending doom is inexcusable. A third of our seniors are not in poverty because of this program. This is one of the great accomplishments of America (and one of the few remaining in our ever-dwindling social contract). To speak of cutting or privatizing such an exemplary and successful program is breathtakingly ridiculous. Even the Congressional Budget Office admits that Social Security is solvent, as is, without any changes until 2052, and up to 80 percent after that. As Henry Aaron of the Brookings Institution informs in a Washington Post article, the idea that somehow privatizing Social Security, making it dependent on the whims of the stock market, is the answer, is also a myth.

Medicare is a quandary, but not because of it’s entitlement issue. It’s because of managed care and the pharmaceutical industries skyrocketing profits. Seniors consume the most medical care and prescriptions -- private companies are gouging the government through Medicare reimbursement with inflated charges (yet another, in essence, subsidy to big business). We don’t even use our numbers to negotiate prescription drug-price deals for buying in volume (in fact, this was strictly prohibited in Bush’s Medicare bill).

For our health care we spend twice as much as any other developed nation, we get worse results, and 50 million are uninsured.

But, as usual, the recommendations always seem to be: cut services, slash wages, do away with programs, etc. The majority of us are asked to sacrifice and to go without so that private insurance and pharmaceutical company CEOs don’t have to. Their profits, mansions, yachts, and other extravagant lifestyle amenities cannot be disrupted by things like living wages, health care for all, or a generally accepted standard of living where we actually have a middle-class again.

Why not just remove the cap on Social Security? Why isn’t someone demanding that business actually pay the nominal corporate tax rate (rather than the tax sheltered amount they actually do)? Why can’t we regulate the pharmaceutical industry and control costs like all other developed nations? Why can’t we move toward universal health care? The administrative costs of our health care system represent 25 to 30 percent of our total cost. In other countries, the same costs represent only 2 to 3 percent.

This (mis)reporting is a real failure of the Journal-Sentinel editorial board. To be pushing such Social Security doomsday myths and to endorse the worn-out cut and/or do-without “solution” to this public policy matter is irresponsible. And, again, as always, to not connect the bigger economic dots in this health care/retirement element of the class war (that’s what we’re in, let’s admit it) is journalistic deception. Placing these issues in their larger context would seem a no-brainer. Alongside doing a bit of research and/or talking with some sources who may hold an opposite view. Lapping up these doomsday scenarios and regurgitating them into the newspaper as gospel is a disservice to readers.