Friday, April 28, 2006
A FEW MORE OILY WORDS
Readers and television watchers have been bombarded by oily rhetoric on the subject of gasoline prices. Please permit the Militant Moderate to add a few oily sentences to that cache of slippery information and elusive logic.
Citizens are told time and again that our gasoline pricing problems are a result of the simple economic law of supply and demand. Demand is increasing worldwide at a faster pace than supply can meet. No doubt this principle applies in a macroeconomic sense. What about the intricacies of the details?
Justifiably, some are suspicious of our government's inaction when we have "oilies" for president and vice president, and when many of our congressmen are beholden to oil interests and oil lobbyists for campaign money. Some recall that our government's laissez faire energy policies were written in secret collusion of oil executives with former Halliburton CEO, Vice President Cheney. Lawsuits to open up those records were blocked by Cheney's hunting buddy on the Supreme Court, Justice Scalia.
The American people have some basis for wondering if their government's actions or inactions are in their best interest or in the interest of the oil industry.
As usual, some members of both political parties are posturing and pandering to the press with ineffectual ideas on alleviating citizens' pain at the pumps. A $100 tax rebate, or cutting the 18.4 cents federal tax temporarily, makes no real sense. Drilling in the Anwar will be too little too late. Changing Middle East politics presents a challenge, but no permanent solution either. Changing our source of fuel to natural, renewable sources will take several years, but current prices will accelerate development of alternative fuels which may ultimately be part of the answer. Restrictions on gas guzzlers and new technologies will take time, but those will help.
The public is outraged by the obscene profits of oil companies. Exxon made $8.4 billion and Chevron $4 billion in profits just this past quarter. The Exxon CEO was given a $400 million retirement package. Consumers paying $3 a gallon at the pumps are understandably hostile.
What about whispers of a "windfall profits" tax? Mr. Bush says, "No." While this would do nothing to increase the supply of oil, or to reduce the demand, it might tend to put some restraint on the price of gasoline at the pump? Why? The idea is worth evaluating, even if it raises the hackles of oil people.
Oil companies were having some difficulties making a profit when domestic oil was less than $15 a barrel. Domestic oil royalty owners, producers, transporters, refiners, and distributors were all making reasonable profits from $25 oil, and they were doing exceptionally well with oil at $35 a barrel. The presumption could be made that profits from domestic oil prices, rising with the international market to nearly $75 a barrel, have about $40 of excess profits for somebody on that domestic portion. There may be little excess profits on the imported oil supply.
It seems to the Militant Moderate that some mix of experts in cost accounting, tax law and accounting, economists, and persons knowledgeable of the oil industry should be able to work out a windfall profits tax application to tap the undeserved income from this profiteering at the expense of the consumer. As a general principle, the MM would boldly suggest that at least half of these excess profits from domestic oil should be rebated to the government in taxes.
Such a windfall tax might yield as much as $100 billion a year. Such an amount would certainly help to reduce the annual deficit that is mortgaging the future of our country. Further, the absence of unregulated, uncapped profits, and introduction of accountability, might provide negative incentives for price gouging at each step in the production and sale of gasoline.
American consumers would certainly be less distraught if they knew that the oil companies were really feeling their pain -- even a little.
Dr. Edwin E. Vineyard, AKA Militant Moderate
Readers and television watchers have been bombarded by oily rhetoric on the subject of gasoline prices. Please permit the Militant Moderate to add a few oily sentences to that cache of slippery information and elusive logic.
Citizens are told time and again that our gasoline pricing problems are a result of the simple economic law of supply and demand. Demand is increasing worldwide at a faster pace than supply can meet. No doubt this principle applies in a macroeconomic sense. What about the intricacies of the details?
Justifiably, some are suspicious of our government's inaction when we have "oilies" for president and vice president, and when many of our congressmen are beholden to oil interests and oil lobbyists for campaign money. Some recall that our government's laissez faire energy policies were written in secret collusion of oil executives with former Halliburton CEO, Vice President Cheney. Lawsuits to open up those records were blocked by Cheney's hunting buddy on the Supreme Court, Justice Scalia.
The American people have some basis for wondering if their government's actions or inactions are in their best interest or in the interest of the oil industry.
As usual, some members of both political parties are posturing and pandering to the press with ineffectual ideas on alleviating citizens' pain at the pumps. A $100 tax rebate, or cutting the 18.4 cents federal tax temporarily, makes no real sense. Drilling in the Anwar will be too little too late. Changing Middle East politics presents a challenge, but no permanent solution either. Changing our source of fuel to natural, renewable sources will take several years, but current prices will accelerate development of alternative fuels which may ultimately be part of the answer. Restrictions on gas guzzlers and new technologies will take time, but those will help.
The public is outraged by the obscene profits of oil companies. Exxon made $8.4 billion and Chevron $4 billion in profits just this past quarter. The Exxon CEO was given a $400 million retirement package. Consumers paying $3 a gallon at the pumps are understandably hostile.
What about whispers of a "windfall profits" tax? Mr. Bush says, "No." While this would do nothing to increase the supply of oil, or to reduce the demand, it might tend to put some restraint on the price of gasoline at the pump? Why? The idea is worth evaluating, even if it raises the hackles of oil people.
Oil companies were having some difficulties making a profit when domestic oil was less than $15 a barrel. Domestic oil royalty owners, producers, transporters, refiners, and distributors were all making reasonable profits from $25 oil, and they were doing exceptionally well with oil at $35 a barrel. The presumption could be made that profits from domestic oil prices, rising with the international market to nearly $75 a barrel, have about $40 of excess profits for somebody on that domestic portion. There may be little excess profits on the imported oil supply.
It seems to the Militant Moderate that some mix of experts in cost accounting, tax law and accounting, economists, and persons knowledgeable of the oil industry should be able to work out a windfall profits tax application to tap the undeserved income from this profiteering at the expense of the consumer. As a general principle, the MM would boldly suggest that at least half of these excess profits from domestic oil should be rebated to the government in taxes.
Such a windfall tax might yield as much as $100 billion a year. Such an amount would certainly help to reduce the annual deficit that is mortgaging the future of our country. Further, the absence of unregulated, uncapped profits, and introduction of accountability, might provide negative incentives for price gouging at each step in the production and sale of gasoline.
American consumers would certainly be less distraught if they knew that the oil companies were really feeling their pain -- even a little.
Dr. Edwin E. Vineyard, AKA Militant Moderate
Friday, April 14, 2006
FEDERAL TAX INITIATIVES GROW WEALTH
Some attention has been paid recently by media analysts and editorial writers to the diminution of the American middle class. The shrinking of the middle class, and its separation from the upper class in terms of both income and wealth, has been attributed to various trends and events. Some analysts point to globalization and the inherent competition related to that movement. Others point to our own government policies, including tax policy. This will be an examination of the latter. Due apologies are made to the reader for the professorial style of this piece.
During the past five years a number of changes affecting income and wealth have been made in federal tax laws. Most prominent among these has been the lowering of income tax rates, particularly in the higher brackets. Two other significant income tax changes have been made affecting persons with wealth -- the lowering of rates on dividends and on capital gains. The first change makes it easier for persons with higher incomes to accumulate wealth, while the latter two make it easier for wealth to grow.
For some time tax law has left unrealized capital gains untaxed. That is, unless a property or security is sold or traded, value gains remain untaxed. Combine this latter feature with those above, and with the gradual elimination of the inheritance tax, and a fertile environment is created whereby: (1) it is easier to accumulate wealth; (2) gains from traded wealth tend to accumulate; and (3) gains from non-traded wealth are never, ever taxed. Therefore under such favorable tax policies wealth tends to accumulate and multiply with the wealthy, and wealth remains within the family.
Financial strategies of corporate America are influenced by tax policies. While some may give token dividends, most profitable companies have continued the practices of: (1) carrying huge sums of cash; (2) buying other assets; or (3) buying back stock. All three of these practices tend to enhance the value of existing stock, and thus add to the unrealized gains (untaxed wealth) of company shareholders -- particularly owners of large blocks of stock, many of whom are managers, board members, and relatives. This inside group is well situated to influence corporate strategies in the own interest, not necessarily coincident with the interest of small stockholders or investors in mutual and pension funds, who comprise the majority of stockholders. This ruling oligarchy may choose between and among: (1) higher salaries; (2) greater dividends (at reduced tax rates); or (3) letting equity value (wealth) grow untaxed. Most tend to choose the third option as primary.
Then there are those intangibles known as stock options. Stock options given to managers and board officials allow these persons to buy within a time period a stated number of shares at a stated price (below the market value curve). As stock value grows untaxed, in accordance with the strategy above, these stock options may be exercise and purchases made at earlier and lesser values. Option stock is taxable at the difference between stated value and appreciated value, but ONLY if the stock is sold. Otherwise, these gains are untaxed. This is a simplified explanation, minus complexities.
This has been a brief look at effects of tax policy on wealth accumulation. This demonstrates a shifting of the tax burden, as well as a shifting of the benefits derived from the American form of capitalism. The middle class bears more of the burden and reaps fewer of the rewards. The results of these changes are potentially serious, even disruptive, in social and political consequences for the future. All this has been kept quiet within the tent too long. An open and honest public forum is badly needed on these economic and social issues.
The middle class has been impacted negatively from both above and below. The trends outlined demonstrate the basis for upward separation and prosperity of the wealthy. But the middle class is impacted by other circumstances as well. The outsourcing of professional and skilled jobs looms large, as does corporate migration to cheaper labor markets. Importation of good from areas with cheap labor, immigrant labor competition, and the stagnation of swages all play a part in what has been termed as "the war on the middle class." But these are worthy of a separate discussion.
Dr. Edwin E. Vineyard, AKA The Militant Moderate
Some attention has been paid recently by media analysts and editorial writers to the diminution of the American middle class. The shrinking of the middle class, and its separation from the upper class in terms of both income and wealth, has been attributed to various trends and events. Some analysts point to globalization and the inherent competition related to that movement. Others point to our own government policies, including tax policy. This will be an examination of the latter. Due apologies are made to the reader for the professorial style of this piece.
During the past five years a number of changes affecting income and wealth have been made in federal tax laws. Most prominent among these has been the lowering of income tax rates, particularly in the higher brackets. Two other significant income tax changes have been made affecting persons with wealth -- the lowering of rates on dividends and on capital gains. The first change makes it easier for persons with higher incomes to accumulate wealth, while the latter two make it easier for wealth to grow.
For some time tax law has left unrealized capital gains untaxed. That is, unless a property or security is sold or traded, value gains remain untaxed. Combine this latter feature with those above, and with the gradual elimination of the inheritance tax, and a fertile environment is created whereby: (1) it is easier to accumulate wealth; (2) gains from traded wealth tend to accumulate; and (3) gains from non-traded wealth are never, ever taxed. Therefore under such favorable tax policies wealth tends to accumulate and multiply with the wealthy, and wealth remains within the family.
Financial strategies of corporate America are influenced by tax policies. While some may give token dividends, most profitable companies have continued the practices of: (1) carrying huge sums of cash; (2) buying other assets; or (3) buying back stock. All three of these practices tend to enhance the value of existing stock, and thus add to the unrealized gains (untaxed wealth) of company shareholders -- particularly owners of large blocks of stock, many of whom are managers, board members, and relatives. This inside group is well situated to influence corporate strategies in the own interest, not necessarily coincident with the interest of small stockholders or investors in mutual and pension funds, who comprise the majority of stockholders. This ruling oligarchy may choose between and among: (1) higher salaries; (2) greater dividends (at reduced tax rates); or (3) letting equity value (wealth) grow untaxed. Most tend to choose the third option as primary.
Then there are those intangibles known as stock options. Stock options given to managers and board officials allow these persons to buy within a time period a stated number of shares at a stated price (below the market value curve). As stock value grows untaxed, in accordance with the strategy above, these stock options may be exercise and purchases made at earlier and lesser values. Option stock is taxable at the difference between stated value and appreciated value, but ONLY if the stock is sold. Otherwise, these gains are untaxed. This is a simplified explanation, minus complexities.
This has been a brief look at effects of tax policy on wealth accumulation. This demonstrates a shifting of the tax burden, as well as a shifting of the benefits derived from the American form of capitalism. The middle class bears more of the burden and reaps fewer of the rewards. The results of these changes are potentially serious, even disruptive, in social and political consequences for the future. All this has been kept quiet within the tent too long. An open and honest public forum is badly needed on these economic and social issues.
The middle class has been impacted negatively from both above and below. The trends outlined demonstrate the basis for upward separation and prosperity of the wealthy. But the middle class is impacted by other circumstances as well. The outsourcing of professional and skilled jobs looms large, as does corporate migration to cheaper labor markets. Importation of good from areas with cheap labor, immigrant labor competition, and the stagnation of swages all play a part in what has been termed as "the war on the middle class." But these are worthy of a separate discussion.
Dr. Edwin E. Vineyard, AKA The Militant Moderate
