Editore"s Note
Tilting at Windmills

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May 13, 2008
By: Kevin Drum

ENERGY PANDERING....Over at The Corner, Iain Murray argues that the Consumer First Energy Act, introduced a few days ago by congressional Democrats, is a "terrible piece of legislation." Oddly enough, he seems to be right. Rolling back tax breaks for oil companies and promoting renewable energy tax credits instead is a sound idea, but the rest of the bill is mostly just a bunch of cheap political pandering: a windfall profits tax, some SOP griping about the Strategic Petroleum Reserve, a bit of anti-OPEC grandstanding, and some almost certainly useless provisions aimed at speculators and "price gougers."

The Republican energy bill is even worse, but if this is the best Dems can do it's time to take a deep breath and start over. We can win in November without this kind of junk.

Kevin Drum 1:42 PM Permalink | Trackbacks | Comments (24)

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Comments

Progressives/liberals/Democrats assume initiatives from the Left side of the aisle must somehow be better than offerings from the Right. After all, we're "right" and they're "wrong", aren't they? Truth be told the magnitude of the problems facing the nation puts all three branches of government in the position of the blind man describing the elephant. There just isn't enough reach to feel every fold, crevice and wrinkle of an issue. Hence bad legislation, bad enactment and bad execution. I'd like to go on thinking Democrats have better answers but truthfully they're just as lost, dishonest and mercenary as anyone on the Right.

Posted by: steve duncan on May 13, 2008 at 2:09 PM | PERMALINK

No one will ever accuse the Democrats as being effective legislators. Currently, their only advantage is that they are not Republicans.

Posted by: AJB on May 13, 2008 at 2:10 PM | PERMALINK

How is a windfall profits tax "cheap political pandering"? Half a trillion in profits for big oil since Bush took office. No civilized country would permit this level of fleecing.

Posted by: shams on May 13, 2008 at 2:10 PM | PERMALINK

I wouldn't mind it if someone pampered me, as opposed to pandering me.

Srsly, do we really expect congress to solve the energy problem - high price and global warming? Nope, it's going to take ordinary people changing their behavior.

So again, I suggest that Kevin hitch Inkblot and Domino up to a pony cart and get them to taxi folks around.

Posted by: optical weenie on May 13, 2008 at 2:10 PM | PERMALINK

a windfall profits tax --what's the problem?

SOP griping about the Strategic Petroleum Reserve--again, no problems

a bit of anti-OPEC grandstanding--just words no problem

If the provisions are useless then they don't make things any worse. No problems.

So I fail to see the problem.

Posted by: MNPundit on May 13, 2008 at 2:19 PM | PERMALINK

It's a problem because we've had a windfall profits tax before, and got rid of it under a democratic congress for a reason. It resulted in less domestic production because we can only tax american companies, and in the end lead to higher prices and a stronger hand for OPEC.

Oil companies have "record profits" because their product is in high demand and very expensive. There's nothing evil about it, What the hell is a windfall profit anyway? What is the right level of profit?


Posted by: Mike on May 13, 2008 at 2:28 PM | PERMALINK

The Strategic Oil supply is pretty much small potatoes in the big scheme of things. Still under Clinton oil was released from the reserve when the oil market was tight, and restored when the supply was looser. This had a small but positive affect on stabilizing domestic oil prices, and earned the government a nice piece of change (sell high, buy low, what a clever policy). Contrast this with Bush’s bone headed insistence on filling the reserve no matter what the state of the domestic market.

Posted by: fafner1 on May 13, 2008 at 2:57 PM | PERMALINK

There need be no punitive motives in a windfall profits tax. It can be viewed as as equivalent to a higher-income person moving into a higher tax bracket in a progressive system. If the oil companies are awash in cash, they frankly have a greater ability to pay, and we certainly need the money.

Posted by: demisod on May 13, 2008 at 3:03 PM | PERMALINK

What are the oil companies' profit margins? Are they excessive like Apple's or Ben & Jerry's Homemade, Inc.? How about an ice cream and iPhone and iPod windfall profits tax?

Consumer friendly oil companies:
http://www.msnbc.msn.com/id/8646744/

"Even as their overall profits have soared, major oil companies are earning a relatively modest 8.7 percent profit margin -- the portion of the sale of each barrel that hits the bottom line. Major banks and drug makers, for example, enjoy profits margins that are twice as big."

Pigs and Profit Gougers, Apple, Ben & Jerry's:

http://www.businessweek.com/technology/content/sep2005/tc20050921_4557.htm

"The verdict? It costs Apple $90.18 in materials to build the unit and $8 to assemble it, leaving a profit margin before marketing and distribution costs of about 50%. That's consistent with the margins on earlier iPod versions and serves as a reminder of what a profit machine the iPod family of products has become for Apple since it was introduced in 2001.

Margins on the computer-maker's other products tend to be slimmer. An iSuppli teardown of the Mac Mini found the cost of material and manufacturing on that computer to be about $283, leaving a gross margin of 44% before marketing and distribution costs."

http://www.benjerry.com/our_company/research_library/fin/qtr/1999/Q3-99.html
"The Company's [Ben & Jerry's] gross profit margin increased to 41.4% as compared to 37.5% in the same period last year..."

Posted by: Luther on May 13, 2008 at 3:08 PM | PERMALINK

Special tax breaks for oil companies don't make sense. Windfall profits taxes are not good, they punish those who were prescient enough to investment in something needed in the future. WPTes simply reduce the potential upside to investment, which should have the effect of reducing it.

The real American energy villain, is the American consumer (commercial and industrial as well) who is totally clueless about energy usage, along with a cheap energy is my birthright mentality. But you'll never hear that from a politician, it would be branded as being an out of touch elitist.

Posted by: bigTom on May 13, 2008 at 3:47 PM | PERMALINK

That big sucking sound that you hear when you fill up is America's wealth moving overseas.

Luther, I am not a fan of windfall profits taxes because they don't work, but anytime a commodity goes up 17% in a couple of months somebody is making a nice fat profit.

I would love to see Charlie Rangel's bill H.R. 5351 passed. All it does is move 18 billion in oil company tax breaks to the renewable energy sector. I see no reason to give any mature or declining foreign industry a tax break when the same money could be used to help emergent technologies that will employ Americans.

Posted by: Ron Byers on May 13, 2008 at 3:48 PM | PERMALINK

In related (and embarrassing) news, the Massachusetts legislature is considering a gas tax holiday of our own.

Does this mean I have to send out two sets of cards?

Posted by: thersites on May 13, 2008 at 4:56 PM | PERMALINK

Thersites,
Looks like you'll have to send out 3 sets of cards along with hanging your stockings up on the fireplace. AP is quoting Shrub as saying that he thinks a gas tax holiday is good.

Don't forget, I registered at Nieman-Marcus.

Posted by: optical weenie on May 13, 2008 at 5:13 PM | PERMALINK

>>We can win in November without this kind of junk.

You have it backwards. With this kind of junk, you may not win in November. Democrats excel in not giving anyone a reason to vote for them.

Posted by: Larry on May 13, 2008 at 5:55 PM | PERMALINK

Kevin, you just have to indulge that anti-populist streak? Speculators certainly add many $ to the price of a bbl of oil, hard to say how much but every extra dollar cost hurts the real economy.

Posted by: Neil B. on May 13, 2008 at 6:12 PM | PERMALINK

BTW, the easy way to do WPT right is to just make all corporate taxes progressive on the basis of profit percentage. Then, companies that move lots of merch do OK, but those that take advantage of tight supply can't keep as much of the extra margin. Why not?

Larry - you can think of reasons for voting for Republicans, or maybe you just think no one deserves it at all?

Posted by: Neil B. on May 13, 2008 at 6:17 PM | PERMALINK

We really need to open a new can of legislators.

Posted by: Dave Schuler on May 13, 2008 at 6:58 PM | PERMALINK

What I find so frustrating is that even among Democrats all the talk is about increasing supply.

What ever happened to reducing demand?

Posted by: mfw13 on May 13, 2008 at 8:41 PM | PERMALINK

Yes mfw13, and the best way to do that is to have less people. But can governments, having been bullied and infiltrated by a rotten cornucopian and natalist cabal of religionists and plutocrats (who want to reduce wages by increasing the supply of new workers, and to increase land values by increasing demand) ever get back to promoting population control?

Posted by: !!! on May 13, 2008 at 9:11 PM | PERMALINK

"Oil companies have "record profits" because their product is in high demand and very expensive. There's nothing evil about it, What the hell is a windfall profit anyway? What is the right level of profit?"

Posted by: Mike on May 13, 2008

---------------------------------

If a product costs X, then you can easily accept a company charging X + some markup.

If the product cost goes from X up to Y, then you can see the price at Y + some markup.

What's going on when the cost goes up to Z and they not only charge Z + some markup, but they increase their markup even more?

What's going on when this increased price gets passed on through the entire economy and drags it down? Is that in any way similar to the high markups on an iPod? Yeah, I didn't think so either.

The cost of oil and gasoline spreads throughout our economy like blood through your body. We can't easily stop using it any more than we could cut back on our blood supply.

So, we need more than a 'free market' and 'competition' (which incidentally doesn't seem to be doing anything to hold down prices).

We need some government intervention to protect the nation. It's a national security issue!

Posted by: MarkH on May 13, 2008 at 11:21 PM | PERMALINK

I know it is hard to look at the big picture, but this debate ignores the following looming catastrophe.

If we have reached the point where we realize the amount of oil is finite and limited, a 40 year supply at our current usage, we should consider using what we have left to build a sustainable energy system.

By covering less than 1/2% of the continental US with solar thermal-to-electric power plants like the working unit at Solar One Nevada, we can produce Twice our current amount of electricity. We already have the means to distribute this electrical energy to electric cars, high speed electric trains, buses, mines, factories and farms. Thermal storage in molten salts or high temperature fluids will span the hours of darkness. Greenhouse gases or pollution are not a problem.

Supplies of uranium are limited to less than 100 years. Fuel crops convert only a fraction of one percent of sunlight into useful fuel. Direct sunlight to electricity by solar thermal is at least 60 times more efficient.

The world will run out of oil in less than 40 years according to the extractable amount of oil in the world's proven reserves detailed by the US Department of Energy.
See: http://www.eia.doe.gov/emeu/international/reserves.html

Posted by: deejaayss on May 14, 2008 at 11:06 AM | PERMALINK

PROFIT:Amount left after (all) debts paid.(how many 0's in BILLIONS?) Buy low sell high.Buy high sell higher.And I don't buy 10 gallons of Ben&Jerrys every other day.

Posted by: breeze on May 14, 2008 at 2:02 PM | PERMALINK

.5% of the Continental U.S.? What does that work out to -- between 15,000-20,000 square miles? Heck of a grid.

Posted by: demisod on May 14, 2008 at 5:41 PM | PERMALINK

Less than 1/2% is a square approximately 150 miles on a side. Of course, the solar fields would be spread out from west Texas to California.

No one said it would be easy, but remember, we must use the remaining easy energy to build the solar renewable system. If we wait much longer, we won't have the means to do so.

Posted by: deejaayss on May 15, 2008 at 12:27 AM | PERMALINK
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