Grover Norquist Doesn’t Want Oil Companies to Face a Tax Increase

Do the editors of the National Review have any commonsense? OK, they don’t want the oil companies to lose their special privileges gained over the last several years of lobbying efforts – but why would the National Review be so stupid to put up Grover Norquist to make the case:

The “Clean Energy Act of 2007” would raise taxes on both domestic oil producers and American consumers … Claiming that “Big Oil” owes $6 billion in royalty fees for production in federal waters, House Speaker Nancy Pelosi has implied that oil companies got away with murder after Hurricane Katrina sent oil prices skyrocketing past $70 a barrel. In a Wall Street Journal editorial Tuesday, however, the exact nature of the leases that allowed for that production was revealed. The leases, signed by the Clinton administration’s Interior Department in 1998, made no stipulation about royalty payments. Even after the lessees inquired about the lack of royalty payments, the Interior Department signed the contracts anyway. Nonetheless, the new Democratic majority intends to violate binding contracts, forcing domestic producers to accept a $9 per barrel royalty fee from the leases. If they do not except, they lose the right to bid for federal property in the future.

Some on the right are confusing uber-technical legal arguments with the economics of demand and supply. Whether or not some contract administrator screwed up big time during Clinton’s second term, Norquist is advocating letting oil companies to use government resources free of charge. This is a subsidy and I would suspect that the incidence of this subsidy accrues to the supplier not the consumer. But I’m assuming an inelastic supply curve. Norquist wishes to scare us by saying the incidence of removing this subsidy accrues to the consumer. OK Grover – what are your estimates of the elasticities of demand and supply?