Thursday, May 31, 2007


There is a thorough analysis of Fred Thompson's "political positions and votes as they pertain to all three parties" (Republicans, Democrats, and Libertarians) over at by Jace Walden.

From the post, here are the things which I personally like about Fred (in no particular order):
–Would like to impose a two-year limit on welfare benifits for recipients who are able to work
–Would like to slightly increase spending on national defense
–Supports decreasing the Captial Gains Tax, Cigarette Taxes, Income Taxes, taxes on domestic and international businesses, and would also support eliminating taxes on savings and investment
–Believes that a woman should be able to seek an abortion under any circumstances as long as it is in the first trimester
–Is not “Christian enough” for James Dobson and the religious right
–Supports eliminating government regulation to encourage [investment] and economic expansion in the private sector
–Wants to allow the natural cycle of the market to create jobs without government intervention
–Supports school choice programs so that parents receive vouchers that can be used to send their children to participating schools.
–Wants to decrease spending in federal health care programs and research
–Would like to limit the growth of government to 2%

Here are the things I don't like about Fred (again, in no particular order):
–Would increase penalties on the selling and trafficking of illegal drugs
–Voted for McCain-Feingold

I did leave out a few things from the Walden post about which I don't really care.

But taken on the whole, and assuming this post portrayed him accurately, Fred looks like someone I could vote for. Mind you, I am not endorsing Fred...yet.

Wednesday, May 30, 2007

Here comes Fred!

You would have to be hiding under a rock today to not realize that former Senator Fred Thompson is running for president.

What can we expect from Fred? A conservative in the Reagan mold, without the Newt Gingrich baggage.

Here are some snippets from a speech Fred gave on May 4th:
Some want us, to the extent possible, to withdraw from the world that presents us with so many problems, in the hope they will go away. Some would push us towards protectionist trade policies. Others see a solution in raising taxes and redistributing the income among our citizens.

Wrong on all counts. These are defensive, defeatist policies that have consistently been proven wrong. They are not what America is all about.

Let's talk about the issues here at home, first. A lot of folks in Washington suffer from a big misconception about our economy. They confuse the well-being of our government with the wealth of our nation. Adam Smith pointed out the same problem in his day, when many governments mixed up how much money the king had with how well-off the country was.

Taxes are necessary. But they don't make the country any better off. At best they simply move money from the private sector to the government. But taxes are also a burden on production, because they discourage people from working, saving, investing, and taking risks.

That is the key thing liberals always miss when discussing taxes (which is why I put it in bold). People take financial risks for one reason: they have nothing to lose, whether they have been backed into a financial corner, or they have more money than they will ever need. Either way, taxes take away the ability of either of these people to take risks. If not for the risk takers, you wouldn't be reading this right now. Government funding didn't put personal computers in everyone's home. While government funding may have started the Internet, it was private funding that made it take off.

That's why the economy booms when taxes are cut. When the Kennedy tax cuts were passed in the 1960s, the economy boomed. When Reagan cut taxes in 1981, we went from economic malaise to a new morning in America. And when George Bush cut taxes in 2001, he took a declining economy he inherited to an economic expansion -- despite 9-11, the NASDAQ bubble and corporate scandals.

The Democrats, of course, want to raise taxes. They only want to target the rich, they say. A word of advice to anyone in the middle class -- don't stand anywhere near that target.

I see Fred knows his history. That was how the 16th Amendment got passed.

But for those of you who see taxation as a necessary evil which is needed for the government to solve whatever ails society, Fred has this to say:

The growth of government is not solving these problems; it's causing a lot of them. Every level of new bureaucracy that is created develops a level of bureaucracy beneath it, which creates another one. Pretty soon there is no accountability in the system. A new head of a department or agency comes in from out of town and, after a protracted confirmation fight, wants to spend his or her few years in Washington making great policy and solving national problems, not fighting with their own bureaucrats. So they just let well enough alone. Then you start seeing the results. Departments that can't pass an audit, computer systems that don't work, intelligence breakdowns, people in over their heads.

Yet people in both parties continue to try to federalize and regulate at the national level more and more aspects of American society -- things that have traditionally been handled at the state and local level. We must remember that we have states to serve as policy laboratories for innovation and competition. That's how we got welfare reform. Our system also allows for the diversity of our large country. Our attitude should be, let the federal government do what it is supposed to be doing -- competently. Then maybe we will give it something else to do.

On illegal immigration:

The government could start by securing our nation's borders. A sovereign nation that can't do that is not a sovereign nation. This is secondarily an immigration issue. It's primarily a national security issue. We were told twenty years ago if we produced a comprehensive solution, we'd solve the illegal immigration problem. Twelve million illegals later, we're being told that same thing again. I don't believe most Americans are as concerned about the 12 million that are here as they are about the next 12 million and the next 12 million after that. I think they're thinking: "Prove you can secure the border and then people of good will can sit down and work out the rest of it, while protecting those folks who play by the rules."

On term limits and Social Security/Medicare:

Sometimes I think that I'm the last guy around who still thinks term limits is a good idea. The professionalization of politics saps people's courage. Their desire to keep their job and not upset anybody overrides all else -- even if it hurts the country.

So the [Social Security/Medicare funding] problem gets kicked a little further down the road. This action is based on the premise that our generation is too greedy to help the next generation. I believe just the opposite is true. If grandmom and granddad think that a little sacrifice will help their grandchildren when they get married, try to buy a home or have children, they will respond to a credible call to make that sacrifice -- if they don't think that the sacrifice is going down some government black hole.

I am going to quote my friend, Senator Tom Coburn of Oklahoma. I don't think he'll mind, even though it was a private conversation. He said, "People talk a lot about moral issues, but the greatest moral issue facing our generation is the fact that we are bankrupting the next generation. People talk about wanting to make a difference. Here we could make a difference for generations to come."

Of course, anyone who quotes Tom Coburn is ok by me.

Wednesday, May 23, 2007

It's a Gas Gas Gas!

So how much of our current gas prices go to taxes, versus oil company profits?

A simple answer can be found in a typical oil company financial statement. For the sake of discussion, I will use Exxon Mobil.

According to Exxon's last SEC quarterly filing from March 2007, Exxon paid over $23.6 billion in taxes, whereas their after-tax net income was $9.2 billion (although that figure includes over $3 billion in non-oil related income).

Of course, government taxation doesn't end with the oil company. Since most gas stations are franchised or independently owned, they pay taxes too. According to the Department of Energy's website, 14% of April's retail gas prices were for severence taxes, import tariffs excise taxes, and royalties paid to the government. Since I am using the March data for Exxon, I will also use the March figure from the DOE, which was 15.5%.

Here is where it becomes tricky to determine an actual figure for the cost of government taxation, because the DOE figures do not include income tax cost. For the sake of argument, I will drop the consideration of income taxes paid by gas retailers, since most of their income is derived from other operations. Even the DOE figures for March 2007 put the distribution and marketing costs (where the gas retailer's profits would be, as well as their related income tax cost) at 8.5%. (Ironically, since 2000, it seems the distribution and marketing costs seem to go up when the retail price of gas drops. Although the statistical correlation is not precise.)

Based on the DOE definitions, the income tax passed through to the consumer by the refiners would seem to be included in the "refining costs and profits" category, which is defined as "the difference between the monthly average of the spot price of gasoline...(used as a proxy for the value of gasoline or diesel fuel as it exits the refinery) and the average price of crude oil purchased by refiners (the crude oil component)." The cost for this during March was 23.6%.

If we assume Exxon is the typical oil refiner (admittedly a huge assumption), and apply Exxon's income tax costs as a percentage onto the DOE figures from March, then 25%* of the DOE's "refining costs and profits" was paid to income taxes.

25% of the 23.6% of the retail price of gas means an additional 6% of the retail price went to the government, on top of the other 15.5% that went to taxes. This makes 21.5% of the retail price of gasoline going to the government. Considering this is a potentially conservative estimate because it gives no consideration is given to gas retailers' income taxes, plus I overestimated Exxon's passed along costs (thereby minimizing the income tax impact on the pass along costs), this is a pretty hefty amount. Of the average retail price in March of $2.563/gallon, 55.1 cents went to the government.

How much did Exxon walk away with? 35% of the DOE's "refining costs and profits", which is 8.2% of the retail price of gas. Of the average retail price in March of $2.563/gallon, 21 cents went to oil company profits.

As I have said before, there are a lot of assumptions built into these numbers, and feel free to point out flaws in my math. But the truth is that government costs more than oil companies, even if my figures are off.

On a related note, one thing I noticed in the DOE figures is that crude oil as a percentage of the retail cost of gas has gone up in the past seven years, from 41.4% in April 2000, to 50.3% in April 2007. While it has fluctuated over this period, from a low of 35% in May 2001 to a high of 60.1% in January 2006, the overall trend has been towards the price of crude oil driving the retail price of gasoline. Supply and demand anyone?

*The actual numbers used to determine the 25% were:
Exxon's total income taxes - $6.784 billion
divided by the sum of the below plus the figure above to get the percentage of the income tax passed along
Exxon's production and manufacturing expenses - $7.283 billion
Exxon's selling, general and administrative expenses - $3.392 billion (this may include expenses not related to oil refining, however the bulk of it would apply)
Exxon's total net income (including non-oil related income) - $9.280 billion

UPDATED: I stand corrected.

I was listening to the radio yesterday, and a representative of an oil refiners trade organization (I forgot his name, sorry) pointed out that up to 15% of our refined oil is IMPORTED. That little factoid is not presented in the DOE or Exxon figures, but is quite important to consider.

Another thing he pointed out is that it takes up to 20 years to build and run a new refinery before an oil company can see a profit from it. If you were an oil company in the current energy environment, how comfortable would you feel doing that?