So, these companies should pay dividends until inflation is brought back to the CPI, and even then they should sell at 100% of their cost (not the current 100-150%). When you do not pay these dividends the price of your oil drops to the current rate, and the oil companies must pay a lower dividend, so they can bring that inflation down to the CPI in order not to be losing money as the price of their oil goes up. (Note: I should add here that if your goal is to avoid inflation over a long period you should always buy barrels for a price that is above the level of current income.)
I also don’t think they’ll agree, and with the exception of a small group, will support the proposal I offered in chapter 3. Most of the oil companies I have spoken with are reluctant to increase the price of their oil, but they might just be a little less reluctant if there were no government assistance to raise the price of their products.
I have always been a big supporter of giving people who earn high incomes a tax credit in order to prevent them from moving into expensive places where they need to pay a lot of money to live. If this was done now in a way that raised the taxes on the most important and most popular taxes , (such as Social Security) we could make some sort of a change to our tax code. We could lower the tax credits and the rates of our most important tax credits.
If the oil companies insist on paying as much tax at their current level regardless of the change in price of their oil, we can make a good argument that any change is a tax increase, and no change is as bad as the current status quo of high federal income and wealth taxation of almost everyone. If you’ve got a $50,000 salary you’d better not move to Detroit if they’re giving you a $5,000 tax credit.
As you can see, I’m not sure anyone is clamoring to raise oil prices, most of the oil companies would seem to be ok with the existing situation, which is good news. And I think this is more a question of the willingness to make a proposal that can make a difference in the long run, even if it means a tax hike, than of the willingness to raise prices if it is what it comes to.
The government is going to have a very hard time raising the money to fund a big infrastructure program, unless and until we begin to pay down the long-standing debt, which I believe we are beginning to do at a much slower pace than previous administrations. There are a whole series of other potential programs that won’t cost any money - at least in the short term if Congress and the president insist on supporting it - but the government now needs to either fix and/or raise new tax rates to pay for those programs. That’s the other big challenge we have. On the other hand, while some of us would love to see a lot of new spending and infrastructure funding, there is a long line which we can cross before we can say that we’re in a good spot. So long as the economy continues to grow in a robust way, we will not need new tax increases to address the infrastructure needs.
I think this isn’t an either/or proposition, because I think a lot of the infrastructure needs are actually a lot harder to fund in the long run from oil taxes alone than they were from previous tax increases. If you see the long-term spending and spending capacity to support a number of these large-ticket projects that we are talking about, then, if you are not willing to get rid of your existing carbon tax and/or to raise the price of your oil products above the price of your goods, you may be going against your interests when it comes to increasing the rate of the oil tax and/or the price of oil.
A few additional thoughts on this are that the $4/barrel oil isn’t really that much, and that we have a massive backlog of federal infrastructure projects at the start we can build something from. The current backlog of projects is growing rapidly. There is almost zero prospect of us getting all these projects funded in our limited time.
To the extent that our current oil production plays a role in how our government sees its fiscal situation, oil production is one huge opportunity to generate new revenues. I don’t think there is a significant chance that the Obama administration will find itself spending another trillion dollars on stimulus just because they want to make some new energy-related tax cut a priority. If they were looking at it another way, they would take a view which would see a serious tax increase in general as being not just bad from an economic perspective, but bad from a budgetary perspective.
My feeling is that the tax increases in this context will be viewed by the Obama administration as not only bad for economic expansion and the overall balance of the budget, but that they will be bad for the economic expansion and the overall balance that the federal coffers need to carry.