Wednesday, January 17, 2007

The Truth About Big Oil

One of the issues in the House Democrat’s “famous” First 100 Hours is they have decided to attack Big Oil. It continues to confirm the fact that Liberals simply do not understand economics or business and instead, propose legislation that seriously will hurt our economy.

In their proposed legislation, they want to raise taxes on domestic oil producers and use that tax to subsidize alternative energy sources like ethanol, solar, wind, etc. This, of course, will increase the cost of our domestic oil which will lower its demand and increase the demand and imports of OPEC oil.

Democrats like to claim that Big Oil is ripping off taxpayers through deals they negotiated with the government regarding royalty payments from oil taken from the Gulf of Mexico. In 1998-99, the Clinton Administration signed leases for drilling rights in the Gulf. At the time, the price of oil per barrel was around $10. I believe there were negotiations regarding royalty payments if the price exceeded $35 per barrel but that clause was omitted for some reason. Upon investigation from the Interior Department’s Inspector General, it was determined to be a bureaucratic “snafu” by the Clinton Administration.

A few of the companies alerted the Dept of Interior about the omission and were willing to renegotiate, but were told to go ahead. I guess the thinking was it was not big deal since the price per barrel was so low then. Now that the price is over $60 and was $70, Big Oil is being accused of cheating us poor taxpayers.

The oil companies and the Dept of Interior negotiated and signed contracts in 1998-99. Big Oil made million dollar decisions based on those contracts. Why do the Democrats want to renege a contract that their administration, Clinton, negotiated?

And according to this WSJ Article they are wrong about trying to take away Big Oil “tax breaks” from the 2005 Energy Bill.

Democrats also want to raise about $5 to $6 billion by snatching away alleged tax breaks for Big Oil in the Republicans' 2005 energy bill. Sorry, that isn't true either. The Congressional Research Service reports that the net impact of the 2005 energy bill was to raise taxes on the oil and gas industry by $300 million. Nor does it make sense to repeal a domestic oil company's eligibility for a 2004 tax cut that reduced the effective corporate income tax rate to 32% from 35% on U.S. manufacturers. This tax cut increases the competitiveness of U.S. manufacturers that are now penalized by a U.S. corporate tax rate that is among the highest in the industrialized world. Our objection is that every U.S. company should pay the same, lower rate.

I wish Democrats would stop playing politics and try to understand how the economy and business work in the real world. Then they would be Conservatives.

1 comment:

  1. You have to wonder. Corporations are the boogeyman of the left. Impersonal, they are not allowed to react.
    But here is the kicker: No corporation pays taxes, none, ever!
    It's just a cost of doing business, passed along to the consumer.
    What a country.