The government giveth, and the government taketh away

I agree with Kevin: forget playing with the gas tax, and focus on eliminating all the of the ridiculous direct subsidies to oil companies. I promise, they'll keep pumping the stuff anyway.

Update Alex Knapp had the original thought; forgot to link him too. Let me correct that error now.

Comments

Why not eliminate ALL direct government subsidies to all industries, including farming.

Government interference in markets is based on the misguided belief that the government "managers" are somehow smarter than all of the market participants.

Posted by Ed Reid | May 6, 2008 9:55 AM

I also agree with Kevin. Of course, Kevin was agreeing with me... ;) (Sorry, couldn't resist the snark seeing as how you wrote this post.)

Posted by Alex Knapp | May 6, 2008 10:05 AM

No government interference in the market? What on Earth would the lobbyists do? What about the politicians - they don't spend millions to get elected to a job that pays low 6 figures - without the ability to obtain favors in return for helping their special interests, you will have a great disincentive for power-seekers to go into politics. Won't someone think of the politicians??

Posted by Esher Fern Gamble | May 6, 2008 10:19 AM

Aren't blog links transitive? :)

Posted by Megan McArdle | May 6, 2008 10:24 AM

Presumably everyone agrees with Kevin (and Alex)and you except for members of Congress. But are we really paying $20-50 billion in direct subsidies to oil companies? If so, let's stop immediately, but subsidies that big usually require: (1) really good lobbyists and strong "campaign involvement:" and (2)some bogus sob story ("the good old family farm" to justify agricultural subsidies, "global warming" for ethanol specifically) to unlock the vault.

Posted by Neil Wade | May 6, 2008 11:18 AM

To be fair, even members of Congress agree with Kevin (and Alex) and Megan:

http://latimesblogs.latimes.com/washington/2008/05/a-nancy-pelosi.html

Posted by Jonathan | May 6, 2008 12:14 PM

However, one thing that I did notice when I was doing a little google-fu on the issue is that there appears to be approximately 20 to 50 billion dollars spent by the federal government per year on direct subsidies (as opposed to tax breaks) given to the oil industry each year.

I am all for yanking corporate subsidies but the $20-$50 billion number is clearly just made up. It's a least a magnitude off.

The entire discretionary budget is only something like $730 billion a year so the numbers given would come to roughly 3%-6% of the entire discretionary budget! Even Washington's notoriously bad accounting couldn't miss checks that big every year. I think that (1) somebody moved a decimal point and that (2) "direct subsidy" is used in the loosest possible sense.

People need to develop a rough sense of scale when dealing with large numbers like government spending so that they can spot errors like this.

Posted by Shannon Love | May 6, 2008 12:49 PM

This has been my thought for years. I'm merely a lowly Historian of Technology (in training--but my Ph.D should be done in August and its on US synthetic fuels development back in the 40's and 50's..) and not an economist--but it seems rather ridiculous to me for the US to be subsidizing this industry that so loudly proclaims how government should stay away from it because it is such an independent and shining example of free market capitalism.

So bogus. Eliminate the royalties equivalence. Remove the Depletion allowance (it's abused so much anyways). Remove the intangibles write offs..

Let the real prices of energy come through. I'm not a libertarian, but rather just a liberal, and I think that many liberal "causes" would be best served if the government would just end its interactions in energy markets.

Posted by yes and yes.. | May 6, 2008 12:57 PM

OK, "everybody knows" that oil companies collectively get 11-digit subsidies.

I asked a very liberal and rather knowledgeable friend what these subsidies consisted of. He could not enumerate any. Could someone out there in cyberspace explain to me what huge subsidies the oil companies get?

Please don't charge the whole cost of the Iraq war to them. This country has an interest in preserving the security of world shipping and trade whether the cargo is oil or iPods.

-dk

Posted by Dick King | May 6, 2008 1:38 PM

The real subsidy are the roads and the police who patrol them. Contrary to popular belief, only a portion of maintenance and building costs for roads are paid for with revenues from the gas tax (http://moderntransit.org/letters/budget.html). Furthermore, costs like eminent domain, police, etc. aren't covered at all by the gas tax. Zoning regulations further serve to make the automobile a more economically feasible transportation means than privately-owned mass transit. So, while I'm sure oil companies get a couple tens of billions of dollars in direct subsidies, these are dwarfed by the "roads consensus" arrived at after WWII (and to some extent before). Ironically, it was actually Hitler's Autobahn that inspired former general Eisenhower to go about enacting America's biggest violation of its free market principles: the Interstate Highway System.

It's deeply disturbing that among mainstream libertarians (you, Reason [read some of founder Randal O'Toole's writings on transportation, and see if you don't lose a whole lot of respect for Reason], Cato, etc.), NONE recognize the huge problem that American has: socialized (or maybe corporatized) transportation. It has huge implications for transportation policy, energy policy, land use policy, environmental policy, and foreign policy. So while the blogosphere is getting its panties in a bunch criticizing Clinton and McCain's plans, no one is really concerned about the much larger issue of American's statist transportation planning. Take some initiative – don't confine your blog posts to reactions to the candidates and various other prominent (and oh-so-conservative [in the sense of unchanging] when you look at the big picture), but rather dig a little deeper.

Posted by Stephen Smith | May 6, 2008 3:55 PM

"Could someone out there in cyberspace explain to me what huge subsidies the oil companies get?"

They have tax incentives. I don't know exactly what they apply to, but the total effect is known:

The corporate tax rate on profits over $18.3 million is 35%. When profits are in the billions, oil companies would be paying that rate on essentially all but a negligible portion of their profits. In reality, they pay less than 15% tax. The tax breaks alone come out to about 20% of many tens of billions of dollars. When they have a good year, that's 10 figures of subsidies.

Posted by Njorl | May 7, 2008 4:48 PM

the effective corporate tax rate is 25%.

WHERE IN THE HELL DID YOU COME UP WITH YOUR 35% ESTIMATE?

Posted by spencer | May 7, 2008 5:43 PM

Spencer, that's the statutory rate. Also, the effective tax rate varies by industry and company; you can't just say that the effective rate is 25%.

Posted by Megan McArdle | May 7, 2008 5:47 PM