Columns / Discourse / May 8, 2008

Smoke and mirrors

Businesses are in business to make money by providing a product or service to a customer for more than it cost them to produce it. They exist to make money for their owners, usually stockholders, particularly in the case of larger businesses. What they do not exist to do is create jobs or hand out healthcare insurance, or to be limitless sources of tax revenue. They end up serving those first two roles in the course of making money, and more often than not the third as well, but the reason they’re in business is to make money. That is the guiding focus of every business in the world, large or small. That is also one of the least considered facts in the minds of every liberal I have ever met.

Case in point: the oil companies. These are some of the most vilified corporations in contemporary society, and some of the most unjustly vilified. The fact that they are reporting record profits says only that the per barrel price of oil—what the customer is willing to pay for it—continues to far outpace their drilling expenses, and that more of it is being drilled and purchased than ever before. Certainly, it’s not all coming from the US economy: 70% of their profits come from the rest of the world. And whatever else happens, a windfall profits tax will not bring prices down. It would only drive them up.

At this point, however, many politicians both at the state and federal levels are advocating a far more effective solution: a gas tax holiday. At the federal level, the proposals from both McCain and Clinton are to waive the $0.30/gallon federal tax for the summer months. (Obama, coincidentally, thinks the whole thing is a bad idea). McCain wants to just leave it at that, and if done that way, this tax holiday will be a far more effective economic stimulus than the package passed earlier this year.

Clinton, however, wants make the oil companies pay for it by assessing a new corporate tax on them roughly equal to what the government would be not collecting directly from us. This is either incredibly stupid or incredibly devious, and I’m inclined to think the latter. What she wants to do will not, in fact, give any sort of tax holiday, but will merely shift the taxes from what can be directly seen by the consumers to a more shadowy corporate tax structure. This will do two things: first, it will make the whole thing much less transparent and will hide just how much of the cost per gallon is taxes, and second, it won’t change the price one bit. Oil companies are in business to make money, and any new taxes levied by Hillary will be accounted by them as an expense of doing business in this area, and will be therefore passed on to us, the consumers.

Either Mrs. Clinton is incredibly stupid and does not understand this, or, more likely, she is being incredibly devious. One of the things that made Obama look very bad in the Philadelphia debate last month was Charlie Rose asking him why tax cuts always seem to be correlated with increased revenue and economic stimulation if they are, in fact, ineffective. Obama had no answer, and it was obvious. Hillary was watching that and surely realizes that whoever wins the primary, the tax issue will be key in the general election. She needs, therefore, some way of credibly saying that it’s just been a massive coincidence. The single best way for her to do so is to be able to point to a counterexample still fresh in the public mind, a tax cut which didn’t do either of these things. She’s trying to produce such a counterexample with this phony tax holiday of hers. She knows she has to be able to discredit McCain on this issue above all others, and this is how she has chosen to do it.

What will actually happen in the end, I don’t know. Hopefully we will just get a straight tax holiday, with all the benefits associated therewith. If Mrs. Clinton gets her way on it, though, don’t be surprised if, come October, we get a media blitz about how tax cuts aren’t actually effective and we need to raise our taxes to cover her deficits, and while you’re watching them, bear in mind that she hasn’t actually proven anything. She’s just put on some clever prestidigitation, and done a budgetary smoke-and-mirrors trick. God knows it’s certainly in keeping with the Clintons’ style.

Chris Berger


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