Gulf Oil Spill: time to revise resource tax policy; how about a BEST surcharge?
by Linda Beale
crossposted with Ataxingmatter
Gulf Oil Spill: time to revise resource tax policy; how about a BEST surcharge?
The oil spill in the Gulf continues, wreaking hazard along the Gulf coast and threatening the Atlantic coastline as well. Birds, fish, sea flora and fauna are all threatened. Tourism and fishing face enormous economic costs. Our public lands will take years, perhaps decades, to recover.
Corporatism in all its ugly colors is on ready display in this disaster. The drilling used a single sleeve pipe instead of the stronger and less likely to leak double-walled version that is ordinarily used. They hurried the sealing of the well rather than cycle through the extra day necessary, worried about the fact that the well had already taken longer than intended, with each day costing thousands extra and the rig ready to move on. They apparently disregarded signs of leaking gas and rushed testing at the end. But worst of all, neither BP nor TransOcean was prepared to deal with a deep-water disaster. By BP’s own admission, it “didn’t have the tools” it needed to handle a deep-sea explosion, and obviously hadn’t invested the millions (billions?) it should have in research and experimentation on deep-sea disasters. It looks like profits was the only driving force–no matter what the cost in potential environmental disaster and human lives.
Yet we provide enormous breaks to natural resource extractive industries. Their responsibility for damages is limited. (Congress is considering changing this now–it should do so immediately, and hold BP and Transocean retroactively accountable for the full long-term cost of the damage they’ve done to our world.) We provide the resources at almost no cost–piddling royalties at best. We give layers of tax breaks, including the “percentage depletion allowance” that reduces the taxable income on the theory that eventually the company will have no more product and go out of business. Times, styles, customs and tastes change–but almost every company tied to a specific product will eventually lose out, and it would be foolish to provide that company a tax break for its expected future losses. Tax has always been related to current profits rather than life cycles. But not for the extractive industries.
BP, of course, faces potential criminal charges for its conduct. See this article in Salon.com (June 3, 2010); US Opens Criminal Inquiry, NY Times June 1, 2010. Hopefully, the mere existence of a criminal investigation will act as a deterrent to other extractive companies, signalling the importance of preparation for dealing with potential environmental and economic hazards.
Changes, though, are necessary in the way we deal with extractive industries. Much greater transparency and accountability in the industry are required. Accountability requires more intensive regulation, and a sharper focus on compliance/enforcement within the agencies responsible. The Minerals Management Service is known for collusion with its overseen industries–this has to end. Salazar, Secretary of the Interior, is too much a friend of business and not enough a supporter of the environment–he should be replaced.
Transparency should include clear reporting on the way companies pay (or don’t pay) for the resources from which they profit, and how the compensation within the firm rewards those at the top and fails to ensure adequate focus on research to deal with problems. Senators Lugar and Cardin have suggested full disclosure by companies about amounts they pay to governments for access to natural resources (discussed as an amendment to financial reporm legislation). See Lissakers (from Revenue Watch Institute), The Cleanup Can’t Stop at the Shore, Huffington Post, May 18, 2010. Guess what–lobbyists object to disclosure, saying it would “increase operating costs and hobble competition.” Id. That’s bullshit. Those costs have to be accounted for in the companies’ financial statements and therefore whatever is spent (taxes, royalties, fees) is readily ascertainable by the companies. It is time that it was readily ascertainable by the American public.
Accountability requires more intensive regulation, and correction of the relationshipo between the Minerals Management Service and the industry, to ensure that companies at least do what is currently required of them by law. Companies should be held strictly liable–with joint and several liability among drillers, cementers, oil rig owners–for all cleanup costs as well as long-term environmental and economic damages. Congress should enact such a law immediately, with retroactive force covering BP, Transocean and Halliburton. We can no longer treat resource extraction the way we did in the 1800s–this is a different time, and the potential harms are much greater. Companies, not American taxpayers, have to assume the risks of losses in connection with their profit-making activities.
Perhaps, too, it is time to rethink our tax policy towards environmentally harmful industries to ensure that the industries take into account the cost of current “externalities” such as risk of lives and risk of harm to the environment and economy (as in the tourism and fishery industries being harmed by the Gulf oil spill). Obama called for rethinking the tax breaks for the extractive industries at a speech at Carnegie Mellon, noting that the catastrophic spil demonstrates the need to move towards clean energy. See Obama Calls for Roll Backs on Big Oil tax breaks, Apollo Alliance Daily Digest, June 3, 2010; Obama Calls for Rolling Back Oil Company Tax Breaks to Net Billions for Alternative Energy, Huffington Post, June 2, 2010.
What steps could be taken? Consider the following:
- roll back current tax expenditures benefiting the oil and gas and other extractive industries
- increase royalties for extracting resources from the US commons (including nullifying all current leases and requiring renegotiation based on environmental safety records and current expenditures for research and development to support life and environmental safety)
enact a windfall profits tax
- enact an “BEST” (bailout the environment and states tax) surcharge –a 5% surcharge on natural resource extracting industry companies’ financial statement profits as reported under GAAP or IFRS, whichever is higher, to be redistributed via funding of national and state parks and state coastline preservation efforts, protecting smaller businesses with revenue thresholds ($30 million or more, perhaps).
- charge extractive resource companies an annually adjusted excise tax, calculated as a rolling percentage of the last three-years’ penalties plus three-years’ lobbying expenses, so that a company will tend to pay a higher tax when it expends more money lobbying and based on the number and severity of penalties incurred for safety and regulatory violations. BP had about $14 billion of profits in 2009 (see statement from BP), and spent $16 million in 2009 to lobby Congress (see en.wikipedia.org/wiki/BP). For the first quarter of 2010, BP had profits of about 6 billion. BP has had a number of egregious safety violations, but fines are too small in relation to those profits–a “mere fly-speck on the company’s balance sheet.” Morse, BP Profits from Gulf Spill, Huffington Post, May 3, 2010. As Whatley has indicated, “when a corporation falls short of regulatory standards it does not do so accidentally. Rather, it is a calculated choice based on risible enforcement efforts and piddling penalties passed by legislators on the take.” See Capitalist Hagiography has little room for saints, Huffington Post, May 3, 2010. This excise tax would mean that the more money a company devotes to lobbying and the more piddling penalties that it is required to pay, the more real money it will have to cough up.
Some background about previous efforts to remove excessive tax benefits for extractive industries. Senator Robert CAsey (D-PA) in 2007 proposed an excess profits tax, when Exxon Mobil reported huge profits from the high price of oil. See Sen. wants to tax Big Oil’s ‘excess’ profits, AP, Apr. 26, 2007. The House in 2007 and 2008 at least had the gumption to vote to remove tax breaks (amounting to about $18 billion over ten years) that US oil companies enjoy. See House Repeals Tax Break for Big Oil, washingtonpost.com, Jan. 19, 2007 (noting that bill would have repealed the 2004 lowering of corporate tax rates for big oil and barred new federal leases unless they renegotiated problematic leases from 1998 and 1999 that did not require any royalties whatsoever for Gulf oil production, all measures that were opposed by the Bush administration, which didn’t think the improperly drafted leases should have to be renegotiated by Big Oil); House Votes to Tax Big Oil, Fund Renewable Energy, NPR.org, Feb. 28, 2008. Action was defeated in the Senate, however, where Senate Republicans ensured that big oil would dodge the windfall profits tax bullet and continue to receive the many tax benefits in the Code. See Democrats’ Oil Tax Plan Fails in Senate Vote, foxnews.com, Jun. 10, 2008 (noting the GOP’s defeat of a Democratic energy package that would have rescinded existing tax breaks and imposed a 25% tax on “unreasonable” profits of the largest US oil companies–Exxon Mobil, Chevron, Shell, BP America, and ConocoPhilips–which made $36 billion in the first three months of 2008; the tax would have been avoidable if the companies invested in alternative energy programs or refinery expansions).
I don’t see how any of these measures are going to reduce what I pay for gasoline at the pump. On all the points you made I don’t see what’s in it for me.
Tax all drivers 25 cents a gallon to pay for a full environmental restotarion. Until people reduce driving, or bear the true costs for the oil demanded, then we will have continue to have oil spills. Everyone in this country wants cheap oil, but does not want to bear the costs of accidents or damages that happen in pursuit of that cheap oil. Time for drivers to pay up.
What ‘windfall’??? According to the BP handout you referenced I saw $246B in revenue that generated $16.7 B in after tax profit for a whopping 6.7% profit margin. Exactly where is you windfall? You local Taco Bell has a better profit margin.
Or are the big numbers what is scary?
Ok, the first two point will increase the cost of gas at the pump. Pretty straight-forward government action to increase the cost of doing business (by admittedly taking back Gov handouts)
The BEST proposal is just another tax to be passed on. In 2009, it would have dropped profits to $15.4 B (6.3% margin) and brought in $1.3 B more into the Gov for a total tax of $9.6 B. Again no windfall here.
As for the lobbying tax its in the noise, as was the penalties (I presume).
So all in all, you proposals are probably pretty good at increasing the cost of doing business. Not sure how to translate the additional costs to price at the pump, but its pretty straightforward that all will increase the cost. This may well be a good idea and maybe build up a giant ‘clean-up” fund paid for by the people who actually make the mess. Protecting the commons and pricing in some of the external costs born by the gov/taxpayers in this case is a proper role of the Gov and might bear some fruit.
Increasing liability limits is a no-brainer, I was truely shocked at how low they are currently. $75 Million is rounding error noise for the companies listed.
But you guys always should be called on this windfall tax idea. Its just plain stupid. If you want to cap max profit on the extraction industry to say 25% margin and hit the overage hard – fine. But do it up front and ahead of time. Not after the fact because people have trouble with big numbers. BP was not making a killing with that level of profits for a company that size.
If there is criminal negligence I hope they get hammered…but as Talkleft always reminds me your innocent until proven guilty (they are big supporters of the pediophile Polanski).
Islam will change
mcwop – You do understand that a $0.25/gallon tax will get priced into EVERYONE, not just drivers? That may be fine, but don’t think that will not translate into higher grocery costs, higher bus fares etc…
Islam will change
Paul Tsongas was way ahead of his time, but was nevertheless ridiculed for his idea of adding a 10 cent a gallon tax every year to the price of gasoline, which tax could be suspended in times of dramatic price escalation, but which over time would have prompted innovation and conservation as well as supplying a lot of money for the feds to improve our lives/economy/whatever. I understand Linda is proposing changes at the corporate level and I have always wondered how much the Saudis get for a barrel of oil extracted from Saudi Arabia compares to what the US gets from a barrell of oil extracted from the US or coastal waters. Of course, that may result in an increase in the price of oil, but at least we would not be subdizing the oil companies many of whom are not even US businesses. Lets level the playing field and let market forces determine whether it makes sense to drill in the Gulf. As to depletion allowances, I am not sure how those work–are they different from depreciation? Finally, I like the point about the corrupt regulators. In China, Salazar would not lose his job, he would lose his life.
Who is to say we don’t pay the full cost. We’re all upset because of the pollution. That’s a cost we bear. Now on top of this you propose that we pay yet another price. It seems like this is piling on.
I might modify Tsongas proposal a bit to go .01/month increase over say 8 years in gasoline and diesel. This would be a slow increase but knowing it was coming would change incentives for purchasing cars. Note that one issue that saves a lot in trucks is that today most long haul trucks have sleepers and the drivers have to keep the engine running for AC and heat. It is possible to install an auxilliary engine that does this task for a lot less energy than the main engine, but it is not yet done universally.
The Bears specializes in nonfalsifiable claims. Makes them as hard to disprove as religion.
Sounds good to me…It’s bout time we get back to living like Somalians.
“Increasing liability limits is a no-brainer, I was truely shocked at how low they are currently. $75 Million is rounding error noise for the companies listed.”
At least I can agree with the Bears when it comes to bad government regulation. It should make one doubt their utopia of benevolent omniscient and omnipotent legislators/judges/excutive branch members.
These are the four main components that determine the gas prices you and I pay:
Crude Oil + Refining Process + Retail Sales/Distribution + Taxes = Gas Price
These components, however, don’t contribute equally to the gas prices at the pump. Here’s a look at each component and its role in the retail pump price:
Crude oil — 69%Finding the crude oil
-Getting the crude oil out of the ground
-Transporting the crude oil to the refinery
-Maintaining a reserve capacity of crude oil
Refining the crude oil into gasoline — 6%
–Producing special blends of gasoline to meet local clean air government regulations
-Transporting the gasoline to the gas station
Selling the gasoline at a station — 10%
Taxes, federal and state — 15%
Source: U.S. Energy Information Adminstration
The national average for cost of tax on a per gallon basis equals $.60 a gallon. Keep in mind that some states require the refinement of botique fuels. This makes the price per gallon even worse in some areas.
Again, The United States produces 40% of it’s demand on it’s own, and imports 60%. The overwhelming 60% comes from Canada and Mexico. The United States gets oil from all over the planet including OPEC, but the United States demand is mainly covered by Canada, Mexico, and the Untied States itself. There is no set place we buy from because of speculation. People bid on reserves and buy oil way ahead of time of when they really need it, including the oil companies themselves.
6.7% after taxes on gross revenues in not a meaningful measure. What companies measure is returns on equity.
And after the BP is fined into liquidation the whole management team goes to jail at Devil’s Island.
All fines on BP should be in advance of all claims to BP revenues, including GAAP reported “costs”.
ilsm will not chagne………..
Yes, as well it should. Look at the amount of petrochemicals used to produce bottled water and the amount of fuel to transport it. There is little actual benefit to bottled water. Indeed, it should reflect the full cost of its production, transportation and and disposal. The same can be said of a food production system that sees food items transported across great distances and out of season for many end purchasers. Again, it should reflect the full cost of these economic choices.
There is simply too much cost externalization in the present system. Environmental costs as well as political costs are simply not borne by the public as part of the product price. No wonder why we have failed to develop alternative, sustainable energy sources.
Honestly, I am just tired of cars and the ignoramouses that drive those cars. Putting a slightly higher cost on driving will get a lot of idiots off the roads (just as it did a few years ago when gas was $4 a gallon), cut congestion, and probably cause people to buy fuel efficient cars. I have cut my driving from about 12,000 to 8,500 miles per year. I am happier because of it too. I hate driving, am tired of cars buzzing me when I am on my bike, yelling stuff, throwing stuff, trying to run me down in crosswalks when I am crossing. I say stick it to them.
We were not living like somalians at $4-5 a gallon a few years ago. I’d rather raise the gas tax than my income or property tax. At least I have a choice to pay that or not.
It will marginally. Our economy is not as dependant on gas as it was in teh 70’s however.
Very good Mike.