Wednesday, June 11, 2008

Throw Out The Kitchen Sink

As I was watching a bit of the Senate debate on the latest energy legislation on C-SPAN, I couldn't help noticing how dysfunctional this process has become. This bill was assembled like Frankenstein's monster, out of mismatched provisions selected more for their potential to satisfy key constituencies than for the likelihood they might bring down gasoline prices or reduce this country's dependence on foreign oil. What if the Congress broke with all precedent by separating these provisions into individual bills and proceeded to a straight up-or-down vote on each one? While that might deprive some members of the opportunity to use another member's support or opposition to the aggregated bill as political weapon, that should hardly be a primary consideration when addressing the ongoing energy crisis.

Although the current bill, the America-First Energy Act of 2008 (S.3044) contains an interesting proposal on commodity trading margin limits that might reduce some of the speculation that many believe is contributing to high oil prices, it also includes a windfall profits tax on oil, at the rate of 25% on "the excess of the adjusted taxable income of the applicable taxpayer for the taxable year over the reasonably inflated average profit for such taxable year." The latter curious notion is defined as, "an amount equal to the average of the adjusted taxable income of such taxpayer for taxable years beginning during the 2002-2006 taxable year period (determined without regard to the taxable year with the highest adjusted taxable income in such period) plus 10 percent of such average" but reduced by excess of "qualified investments of such applicable taxpayer for such taxable year" over an average from 2002-2006. Those "qualified investments" refer to wind, solar, biomass and a variety of other renewable energy technologies. This entire provision would only apply to any "major integrated oil company." In other words, any profits of ExxonMobil, Chevron, ConocoPhillips, or the US divisions of Shell and BP not reinvested in alternative energy would be subject to a 25% surtax, after paying income taxes at the full corporate rate.

Now, whether or not you believe that the profits of oil companies should be taxed at more than the effective 40% rate to which they are already subject, or that these companies should invest more in renewable energy, it should be painfully obvious that even if such a bill received a majority of votes in the Senate and House, it would promptly be vetoed by the President. Whatever other valuable provisions this bill may contain have been made hostage to a measure that would further handicap US oil companies that already operate at a disadvantage in the intense global competition for new resources now underway. The inclusion of this Poison Pill for partisan political purposes exemplifies the unseriousness of our present approach to energy policy.

The real solutions to our energy problems must be genuinely bi-partisan and endure from one administration to the next, much as our Cold War strategies did. This bill in its current form violates that principle. If its provisions are as sensible and beneficial for the American public as its sponsors apparently believe, then they should be willing to disentangle them and offer them up for separate votes, on their merits. That may not be the way things are usually done, but then perhaps this is the kind of change that voters consistently say they are seeking in this election cycle.

Note: My personal portfolio includes shares of one or more of the companies mentioned above.

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