Now is the time to tax oil

I filled up my car this morning and it occurred to me that gas prices are about half what they were in June at the height of the latest gas-price spike. To a large extent, the increased gas prices have contributed heavily to our downward spiralling economy--resulting in increases in everything from gasoline to milk, virtually anything that has oil fuel as a component in manufacture or distribution.

During the summer, with oil prices high, the country (indeed, the whole planet) has had a long overdue discussion on our over-dependence on oil, oil's impact on our environment, the funding of hostilaties against us in oil-producing regions where we are not particularly liked, and the instability it creates in our economy. Unfortunately, a lot of TGIF discussion is beginning to die down now that oil prices are coming back down to levels seen before the latest spike. And that is the problem.

We have short-term memories. Assuming the financial crisis is resolved and credit begins flowing again, people will flock to the sharply reduced over-sized, gas guzzling SUVs--at least they will until the next gas spike. And that's the problem, our short-term memories get in the way of developing good, long-term behavior. There is a solution.

Taxes. I know it is an obscene concept, but taxation can play a very pivotal role in the transition to a non-oil-based economy. The problem is two-fold. First, as long as oil is incrementally cheaper than alternatives, there is little incentive to innovate alternatives. However, the point at which oil costs permanantly exceed alternatives, the impact will be devistating until such time as alternatives and the infrastructure are developed to deliver them. This is where taxation can play a positive and constructive role.

Increasing taxes on oil can level the competitive market allowing alternatives to be developed more rapidly. This would be done by two forces: first, taxes on oil would make oil consumption less attractive, resulting in higher tax revenues per gallon of fuel consumed and providing money that could be used to subsidize fledgling alternative fuel sources until they can gain economies of scale. A second benefit results from reduced consumption which in turn results in reduced demand, which in turn results in reduced oil prices. Keeping taxes on oil at an artifically high level basically means that oil producing nations help subsidize our development of alternatives. As the cost of alternative fuel production falls, subsidies can be lifted and oil taxes can be reduced, allowing natural market forces to take over.

So, we can pay now or we can pay later for the transition from oil. The longer we wait, the higher the cost. Had we heeded President Jimmy Carter's warning, we would not be in this situation.

Your thoughts?

[Posted with iBlogger from my iPhone]

Politics and Our Future

Over the past two weeks, we have seen grand showmanship by two political parties, both extolling change. While I have my personal political view (known to most of my acquaintances and friends), that is not the subject of this post. Rather, this post is on the subject of what has not been addressed by either party (or inadequately addressed) that has the most impact on the future of the U.S., its future economic viability, and its standing among world communities. I believe that the following two issues are of critical importance. I present them with factual realities and the inadequacies of both party's position. In reading further, it will become obvious that the issues being discussed and the solutions being proposed by both parties are found lacking in effecting real change. It is also obvious that what is being discussed by the popular press (from the right, center, or left) fails to address root cause issues or to hold the candidates accountable for inadequate solutions. Once again, the fourth estate has failed us.

• The National Debt: Neither party appears prepared to tackle what could arguably be one of the most critical long-term issues facing the U.S. today. The National Debt (not the deficit, which is something entirely different) today stands at around $9.7 trillion and has been growing at a rate of $.5 trillion per year for the last 7 years. During that time, taxes have been reduced. Barack Obama has proposed a PAYGO system to "pay as you go," and has voted in the past to not raise the ceiling on the National Debt. However, he has not stated how he intends to REDUCE that debt. John McCain has proposed to balance the budget 2013, but has not stated when, how, or what he would do to REDUCE the debt. He also has not made a commitment to stand firm on the debt ceiling. While both candidates play to the immediate gratification of reducing taxes now (whether for the rich or middle class is irrelevant), nobody seems to be holding the candidates accountable for the real issue and how to address it sooner rather than later. In the meantime, nine cents of every dollar now goes to pay interest on the National Debt. With the war in Iraq and Afghanistan continuing to be financed with debt, and with increasing support of failing banks also being financed with debt, it is now obvious that the National Debt will top $10 trillion before whoever the winner is takes office. It should be remembered that debt, and the rate of increase in issuing additional debt instruments (whether printing money or IOUs) directly contributes to inflation (oil is not the only cause).

• Energy Reform: Both candidates have extensive platforms that will reform our energy consumption and sources and they are both to be congratulated--as far as they go. Unfortunately, neither go far enough. First, while government should not be in the role of directing private energy development, they are through continuing subsidies to the major oil companies. At the same time, the Congress has failed to pass energy tax credits for alternative energy (with the exception of ethanol production which amounts to an agricultural subsidy that has already destabilized crop prices and will continue to do so). McCain proposes the development of 45 nuclear generation plants by 2030 which means not one watt of electricity will come on line during his administration or his successor's administration. At the same time, his platform is to "Drill baby, drill," as the chant from the Republican National Convention so eloquently phrased it. Yet, if an oil company elected to begin drilling, it would take years to gain approval, more years to equip and drill, and even more years to bring successful wells (not all are) to production. Estimates range from many years to decades. Again, additional oil production from this approach will not be seen in any volume during a McCain administration. Since Obama has also supported this approach (although limited), the same holds true for his administration. Simply put, the most rapid solution would be to decrease subsidies to the oil companies and shift those subsidies to alternative energy solutions--and not just to ethanol production. While it would have a short-term increase cost to energy, it would have a long-term stabilizing effect (and possibly lead to a reduction). Yet neither candidate is willing to make this commitment.

What do you think are the real issues impacting our future? I'd like to know.

Sources:

"The Debt to the Penny and Who Holds It," TreasuryDirect, http://www.treasurydirect.gov/NP/BPDLogin?application=np

"Issues," McCain-Palin Campaign, http://www.johnmccain.com/Informing/Issues/

"Issues," Obama-Biden Campaign, http://www.barackobama.com/issues/

"Obama, McCain on the Issues," by Calvin Woodward, Associated Press, September 8, 2008, http://hosted.ap.org/dynamic/stories/W/WHERE_THEY_STAND?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2008-09-08-16-58-15

"Why Lifting the Offshore Oil Ban Won't Help Gas Prices," by Kathy Gill, Kathy's US Politics Blogg, http://uspolitics.about.com/b/2008/07/17/why-lifting-the-offshore-oil-ban-wont-help-gas-prices.htm