November 12, 2008

Obama Needs to Make the Fuel-Price Stimulus, and the Current Tax System, Permanent

Filed under: Economy,Taxes & Government — Tom @ 8:35 am

Oil is below $60 a barrel, representing an almost 60% drop from its high in low $140s less than four months ago.

Metro Cincinnati gas prices are as low as $1.70; the current local average of $1.84 is down 55% from over $4 less than two months ago.

This $2-plus a gallon reduction represents a $120-plus a month cost savings for someone who drives 1,500 miles a month in a 25 mpg vehicle (60 gallons a month x $2). You have to back into the number from this story, but assuming additional cutbacks in driving since April, Americans drive about 75 billion miles a month. If drivers average 25 mpg, that means consumers are saving over $6 billion a month (3 billion gallons times $2), or over $72 billion a year if prices stay at or slightly above where they are.

The stats just presented appear to be for just cars and SUVs, and to not include commercial trucks and other diesel vehicles. Diesel fuel costs are down by about 40% from their peak. The savings in this area probably push the total annual fuel-price reduction economic stimulus to $100 billion or more, which is more than the $94 billion in stimulus payments the IRS distributed earlier this year.

That should be plenty of stimulus for an economic recovery — if incoming president-elect Obama would just:

  • Promise to postpone for several years, or better yet permanently shelf, any and all impending automatic and planned tax increases.
  • To keep prices down and to ensure future supplies (i.e., to make the fuel-price reduction stimulus permanent), resist the urge to restore the bans on Outer Continental Shelf and Alaskan offshore drilling lifted by Congress and President Bush, respectively. Let ‘em drill.
  • Abandon cockeyed plans for “windfall” profits taxes on oil companies.

If Obama doesn’t currently signal and then carry through on forgetting about his punitive tax plans and/or foolishly locks up fuel resources, the fuel-price stimulus just noted will go away. Any other so-called stimulus coming out of Washington won’t be of much ongoing value to the long-term health of the overall economy. If fuel prices will head back up, or if Obama’s campaign tax promises are carried out, businessmen and entrepreneurs will continue to play it close to the vest by avoiding hiring and capital investment.

The new president and his party have worked tirelessly to talk down, and take down, the economy for years. They finally succeeded doing so sometime in June, creating the current POR (Pelosi-Obama-Reid) Economy — soon to be known, barring an unlikely fourth quarter turnaround, as the Pelosi-Obama-Reid Recession. Unlike them, I want the US to prosper no matter who’s in charge. Following the suggestions just outlined will bring prosperity back.

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10 Comments

  1. All that current fuel prices prove is that the market was not working properly in the first place. Lack of oversight of futures trading allowed for a huge inflated bubble to occur.

    Current fuel pricing should not affect Obama’s plan to end Bush’s tax cuts for the rich. The Bush-Cheney record deficits, not fuel prices, are the justification.

    Exxon reported another record profit period last quarter, $15 billion. That’s a windfall created by a broken market deserving of taxation.

    Drill, baby, drill…..is a mindless slogan disconnected from empirical evidence.

    Comment by The Reverend — November 12, 2008 @ 9:29 am

  2. #1, your comment is as disconnected as it gets.

    Oil prices are driven by expectations. The idea that we might actually use our own resources for once and the worldwide slowdown are what has taken down prices. To the extent there was overspeculation, a lot of speculators got burned. This is known as markets eventually regulating themselves.

    The deficits are 9-11, Bush-driven, and Congress-driven. If Obama does what he wants instead of what he should, the current deficits will seem like the good old days.

    Exxon has paid or will have to pay $11.3 billion in income taxes alone based on its pretax profit of $26 bil. That’s a 43% rate, and that’s before considering the myriad other taxes it pays. I’m not crying any tears for them, but they’ve paid plenty. You’re pretending as if they barely pay anything.

    The only thing that’s mindless, Reverend, is not utilizing God-given resources in our own back yard and sending hundreds of billions of dollars to regimes that don’t even like us, and some of which would rather destroy us.

    Next …..

    Comment by TBlumer — November 12, 2008 @ 9:59 am

  3. #1, more blaming of speculators? Oh please that was already debunked.

    But back to the subject at hand, while the immediate observable savings is $94 billion to the consumer is significant, the bigger issues are the capital outflow from over $200 billion a year from oil imports. That capital is necessary for investment and recycling within the domestic economy to create jobs. How many thousands of high paying jobs are being outsourced overseas to the M.E. in addition to the loss of capital, taxes and royalties? The Drilling Ban has been a totally self defeating proposition. http://conservablogs.com/publiusforum/2008/11/10/the-opposition-response/

    Obama wants to trade oil jobs for green jobs, but that will only end up raising the cost of living to impoverish the poor. http://conservablogs.com/publiusforum/2008/10/29/sprinkle-down-economics/

    Comment by dscott — November 12, 2008 @ 12:12 pm

  4. Here is an excellent article on Obama’s plan to bankrupt the coal industry under the guise of creating GREEN jobs. http://www.american.com/archive/2008/november-11-08/why-obama2019s-2018green-jobs2019-plan-won2019t-work

    The central premise is the Broken Window Fallacy.

    Comment by dscott — November 12, 2008 @ 12:15 pm

  5. Here is the reason why we are in this mess: http://townhall.com/Columnists/JohnBoehner/2008/11/12/lets_work_together_to_make_america_energy_independent

    Bipartisanship! Tell us John Boehner, how much do you have to sell your soul for in order to get Dems to agree even on a partial lifting of the drilling ban??? Compromising over this issue with expensive alternative energy ensures screwing over the country. So who is putting country over party here? When Nancy Pelosi stands to make millions on alternative energy due to her investments, how is this good for the country? Following John McCain’s example of bipartisanship is the sure path to higher energy prices, plain and simple. The answer is to hang tough and be the opposition party.

    Comment by dscott — November 12, 2008 @ 4:13 pm

  6. Obama is still committed to ethanol which means he is opposed to drilling: http://www.bloomberg.com/apps/news?pid=20601207&sid=a2QOK2ttty_I&refer=energy

    Obama, 47, plans to spend $150 billion over 10 years to develop renewable fuels and to create 5 million so-called green collar jobs. He will also require at least 60 billion gallons of advanced biofuels be produced by 2030. Ethanol is a form of alcohol created by fermenting and distilling the starches from corn and other crops.

    Bush’s Energy Independence and Security Act, passed in December, called for ethanol production to more than double to 15 billion gallons in 2015 from 6.5 billion last year. The U.S. pays oil refiners 51 cents in tax credits for each gallon of ethanol they blend into regular gasoline. A 54 cent-a-gallon tariff is slapped on imports from Brazil to protect and stimulate U.S. production.

    Obama supports the mandate and wants to expand it and move toward so-called cellulosic ethanol, Zichal said. Cellulosic ethanol is derived from non-food crops such as switch grass and wood chips.

    Speaking in Missouri in July, Obama said corn-based ethanol isn’t “our best strategy” because of its impacts on food, adding the current additive will usher in commercial production of cellulosic.

    So it looks like we have a new nickname for Obama, Don Quixota, the chaser of liberal boondoggles.

    Comment by dscott — November 12, 2008 @ 5:02 pm

  7. Doesn’t anyone remember that demand dropeed when prices hit $4/gal, which decreased the price, then it fell off the table when the off-shore oil ban expired Oct. 1. Then as the dollar strengthened, the price lowered even more. Amazing the good things that happen when the government does nothing.

    Comment by Joe C. — November 13, 2008 @ 9:15 am

  8. #7, all well and good, but you forgot one thing, the government has ways of doing nothing that also interfere in the market, i.e. the Bureau of Land Management who issues leases for oil and gas drilling. If they do nothing, no leases get sold and no drilling occurs.

    Comment by dscott — November 13, 2008 @ 11:39 am

  9. I am friggin going to be sick, BARF!

    http://www.guardian.co.uk/commentisfree/2008/nov/13/economy-inflation-deflation-bank-england

    recognise that this seems dangerously profligate. Surely the very same tactic, so beloved of countless South American dictators, cannot be the right solution for a sophisticated and stable western democracy in 2008? If you are sceptical about this, I refer you to the work of a sober, mainstream economist who has gone on to greater things.

    In an uncannily prescient speech in 2002 (Deflation: Making Sure It Doesn’t Happen Here), he laid out a detailed plan for avoiding deflation in a western economy. This involved printing money to bail out failing banks, and buying troubled assets such as mortgage-backed securities. If necessary (and we are not quite there yet, in my opinion), he advocates printing more money to finance an increase in the budget deficit and pay directly for tax cuts. That man was Ben Bernanke, now the chairman of the US Federal Reserve. Read his speech on the Fed’s website. So far, about two-thirds of the plan has been implemented, and he clearly stands ready to complete the job if needed.

    Warning, Warning Will Robinson, Danger!!!!

    Comment by dscott — November 13, 2008 @ 2:37 pm

  10. This makes way too much sense and therefore will never be adopted: http://icecap.us/images/uploads/ANENERGYSTRATEGYFORAMERICA.pdf

    Comment by dscott — November 13, 2008 @ 3:02 pm

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