Punish Success And Reward Rent Seeking and Bigger Government

Real Clear Politics recently ran an article by a writer from the so- called Center for American Progress.  I say so-called because from the content of the article, the organization would be more accurately named the Center for American Distress or the Center for Political Bambozzle.  It uses and misuses tired old assertions about oil company profitability, apparently adopting Saul Alinsky’s Rules for Radicals—“push and negative hard and deep enough until it breaks through into its counterside and pick the target, freeze it, personalize it, and polarize it”.

The article contends, “There is, however, one simple tax reform that Congress should pass right away that would make the federal tax code fairer and reduce the deficit with almost no impact on the economy: end special tax breaks for the five biggest oil companies.”  Each part of that sentence is simply false.  The contention that oil companies are some how receiving special treatment under the tax code and as a result pay far less than the corporate rate has been rebutted time and time again.

The Center deserves some sort of award for the extent of its factual distortion.  USA Today last March ran an article on companies paying the highest taxes.   At the top of the list was ExxonMobil and Chevron.  Out of the top 10, oil companies occupied three slots.  According to USA Today, ExxonMobil paid 39% of their earnings in taxes, Chevron 43%, and Conoco-Phillips 51%.  So much for not paying their fair share!  Other companies in the top 10 were Apple, Bershire-Hathway, and Microsoft which paid 25%, 31%, and 23% respectively.

The Center is a big supporter of alternative energy and subsidies to those who embrace the off-fossil energy agenda.  In reality, what the Center wants to do is punish success and use the tax code to discriminate in favor of those companies who will go along with the prevailing Washington philosophy on energy policy—wind, solar, electric cars, advanced battery companies and the like.  The names Solyndra, A123 Battery, Fisker Motors among others come to mind.

According to the Energy Information Administration, in 2007 petroleum subsidies, most of which go to small producers, totaled $2.0 billion and renewable energy totaled $5.1 billion.  By 2010, renewables had almost tripled to $14.7 billion while petroleum was $2.8 billion.  How much greed is enough?  The explosion of renewable subsidies has brought with it an explosion in crony capitalism—firms who profit from the regulatory system and pandering to the political powerful instead of competing in the market place on a level playing field.

Another claim by the Center is that oil companies don’t contribute much in the way of job creation.  I guess the Washington based Center staff is not familiar with North Dakota which has the lowest unemployment rate in the nation and has been creating good paying jobs faster than they can be filled.

Last August, EIA issued an analysis showing that from 2007 to 2013,  private sector employment increase 1% while petroleum industry employment increased a whopping 40%.

The Center is right about one thing, the need for tax reform.  Unfortunately, its prescription for punishing and rewarding is how the current tax code became so unwieldy and unfair.  Tax reform is not easy as demonstrated by the Tax Reform Act of 1986 and documented in the book Showdown at Gucci Gulch.  Defensible reform should begin with a set of principles based on fairness, simplicity, competitiveness, rewarding success, and using the tax code to raise revenue and not social policy.  If the starting point isn’t right, there is no hope for an acceptable outcome.


This article appeared on the FuelFix weblog at http://fuelfix.com/blog/2014/01/22/punish-success-and-reward-rent-seeking-and-bigger-government/

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