“Stop Giving Big Oil Free Money Act”

“Stop Giving Big Oil Free Money Act” would end a loophole that allowed oil and gas companies to avoid paying $18 billion.

Should a 1995 financial break to incentivize offshore drilling remain 24 years later?

Responsible Community’s Position:

With huge deficits at the Federal level, we are not able to afford continued tax breaks that aren’t necessary.

The United States now has excess oil production.

The temporary reprieves that were intended to be in the act were “accidentally” omitted, so the reprieves should be removed.

Oil company profits for 2018 (latest available) was $28 billion, they hardly need incentive to drill for oil.

This bill should be supported in both the House (H.R. 5186) and the Senate (S 2906).

Context

The Deep Water Royalty Relief Act of 1995 — part of a larger 1995 law dealing with energy production — attempted to spur oil drilling in the Gulf of Mexico, by offering companies temporary reprieves from the 12% royalty they were supposed to pay on the produced oil.

However, a clause supported across the aisle — which would have instituted the royalty payments if oil and gas prices exceeded a certain level — was accidentally omitted. Those price thresholds were exceeded years ago. Since then about $18 billion in would-be royalties were never paid.

What the legislation does

The Stop Giving Big Oil Free Money Act would close this quarter-century-old loophole, by banning the Interior Department from issuing any new offshore drilling lease to a company which already holds a royalty-free lease.

The ban would only be lifted for a company if they negotiate their existing lease to a new price threshold, presumably to begin paying royalties on it.

The House version was introduced on November 20 as bill number H.R. 5186, by Rep. Raúl Grijalva (D-AZ3). The Senate version was introduced the same day as bill number S. 2906, by Sen. Ed Markey (D-MA).

What supporters say

Supporters argue the legislation closes a loophole that neither party intended nor would have supported at the time.

“This money belongs to the American people, and some of the most profitable companies in the world are keeping it for themselves because they think they’re entitled to it,” Rep. Grijalva said in a press release. “This money should be building roads and providing health care for veterans. We have to decide once and for all whether the public or fossil fuel corporations really own our lands and waters.”

“Big Oil gets handout after handout straight from the pockets of the American people, all to fuel our fossil fuel addiction that is driving the climate crisis,” Sen. Markey said in the same press release. “It’s time to stop treating oil and gas companies like tax royalty and close this free drilling loophole once and for all.”

What opponents say

Opponents counter that the status quo provided a huge boost to the energy industry, to the point that the U.S. is now almost completely self-sufficient for energy.

The original 1995 law “was a bipartisan program signed into law by President Clinton that jumpstarted the U.S. offshore oil and natural gas industry,” National Ocean Industries Association President Erik Milito said in a statement.

“Between 2000 and 2018, a stronger U.S. offshore industry generated more than $122 billion for the Federal government through high bids, royalties and rents and helped unlock a higher quality of life through affordable and reliable energy,” Milito continued.

“Instead of sending jobs, economic growth and energy security abroad, Washington, D.C. policymakers should find new solutions that help America remain the offshore energy leader.”

Odds of passage

The House version has attracted one Democratic cosponsor, Rep. Alan Lowenthal (D-CA47). It awaits a potential vote in the House Natural Resources Committee, where Rep. Lowenthal is the Chair of the Subcommittee on Energy and Mineral Resources, making a vote there likely.

The Senate version has not yet attracted any cosponsors. It awaits a potential vote in the Senate Energy and Natural Resources. Odds of passage are low in the Republican-controlled chamber.

This article was written by GovTrack Insider staff writer Jesse Rifkin.

Links

https://govtrackinsider.com/stop-giving-big-oil-free-money-act-would-end-a-loophole-that-allowed-oil-and-gas-companies-to-d7dcfcc9eefc

https://www.govtrack.us/congress/bills/116/hr5186

https://www.govtrack.us/congress/bills/116/s2906

https://www.govtrack.us/congress/members/edward_markey/400253

https://www.govtrack.us/congress/members/raul_grijalva/400162

CEO of GM talks about the government investment in GM

The saving of the Detroit auto industry is a popular thing to talk about during this election cycle.  President Barak Obama was instrumental in engineering the structured bankruptcy and the investment in the industry that was needed.  Mitt Romney, the son of an auto executive, said he would have allowed them to crash.

Even hindsight can’t tell us if the dire prediction about the failure of the auto industry would have ever come true.  But, a threat of some kind was there.  It is too easy to say that they should have allowed the industry to fail because new industry would have risen from the crumbling empty auto plants.  Even if one did, how long would it have been before the benefits of the market failure would have worked its “magic?”

The truth is, in practical terms the auto industry is alive, improving and perhaps in the best condition it has been in decades.

Dan Ackerson, CEO of GM, in an interview with The Take Away’s Celeste Headlee, points out that this wasn’t the first time the country has saved an industry and that the benefits were much more far ranging in practical terms.  Ackerson is a Republican.  As a Republican, he is not likely to give an interview in support of something that a president and congress from the other party did in an election year if he didn’t think it was an important thing to do.

Let’s read what Ackerson had to say about the investment we made in the auto industry.

Dan Ackerson -”This is not the first time that the American government has injected themselves into the American economy. If I asked you, who [was] the biggest owner of commercial property in the United States 1990s, you wouldn't say the United States, but it was. [During] the Savings and Loans crisis, [the U.S.] [pumped] in $394 billion dollars. Call it around $400 billion dollars.  Not $50.  $400 billion.

“So it's not unusual to see governments for a short period of time, inject themselves into a marketplace to stabilize it.  The analogy I like to make, you remember last year when Joplin, Missouri had the terrible tornado or Katrina [in Louisiana], it's in the basic DNA of Americans [that] we don't walk to help our fellow citizens, we sprint.  This part of the country, the arsenal of democracy saved this country in many respects along with many soldiers, marines, coast guard's men.  But it built the arsenal that saved Western Democracies.”

During the world wars in the last century, it was the heavy industry that we had on our home turf and owned by United States companies that built the machinery to defend ourselves and our allies.  Without that heavy industry already in place, it is hard to image that we would have been able to build all the factories needed before we built one tank in time to make a difference.  As another example, during the early part of the last century, the shipbuilding industry was in the same situation as the auto industry was during the last few years.  The United States stepped in to save it because of the importance of having the ability to build on our own shores.  Can you image the need to build heavy equipment in times of a crisis and expecting Honda of Ohio and the other foreign auto companies in Georgia to do the building?  What would happen if we went to war with the home countries of those companies?

Ackerson continues - “[After World War II] what did we do[?]  In the interest of international economy, international trade, we lowered our trade barriers.  We lowered them in Japan, we lowered them in Germany, our mortal enemies.  And they built export economies to the detriment of this part of the country.  It didn't happen overnight with a hurricane or tornado: It happened over 30 years.  So a million jobs were saved, that's what I say.  $150 billion it's been reported in terms of total tax revenues that would've gone by the boards had the company not been saved.”

That doesn’t include the increase in taxes on surviving companies to pay for the unemployment benefits that would have been paid on those that lost their jobs.  Instead, as Ackerson says, many auto workers didn’t lose their jobs and are still paying taxes.

Ackerson - “And all the supply chain that would've gone with us.  And then if you back off and you say, at the time we went under, or we went into bankruptcy, we had about a $25 billion pension deficit.  But think back if we'd gone into bankruptcy and liquidated in '09.  That $25 billion would've gone into the PBGC (Pension Benefit Guarantee Corporation) which is government sponsored.  Footnote to that comment is, $25 billion would've bankrupted PBGC.  And whose dime would that've been on?  It'd have been on the taxpayer’s dime.  That's never in the calculus.”

It might be said that if we hadn't backed the PBGC, we wouldn’t have had the problem with the pension deficit bankrupting the system.  But, then there would have been no pension money for all those currently retired and those that have worked for many years depending on the pension fund.

As for finding private money to invest in GM, Ackerson also addresses that issue. Ackerson at the time GM was going through its problems was managing private equity money for investors.  This is what he has to say about finding private money.

Ackerson – “So when people say, it should've been saved in another way, it should've gone through a bankruptcy, controlled bankruptcy.  I was in private equity.  I was managing many buyouts, where you do a big buyout of corporations with a portfolio of $50-$100 billion.  There was no way you could've gotten me to put a billion dollars into this thing without the restructuring that was really mandated by the government.

“So, you know I know this is a political year and everybody wants to argue for tactical and political advantage.  Again, I don't have the luxury to do that.  I'm not making a political statement.  I would say, let's be pragmatic about it: It worked.

Finally, Ackerson says, “I think the government does have an obligation to step up and help its people.  This wasn't a giveaway.  It was an investment.  It was an investment from the American people.”

Communities are not a separate entity from the people that live in them.  They are not there to just police the streets and facilitate common services.  Communities form for the safety net and security that they provide.

Thank you, Mr. Ackerson.  Your words represent the best of a Responsible Community.
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Say no to the payroll tax cuts

The payroll tax cut is coming up again. If you remember, at the end of the last year an agreement was reached to push the extension of the tax cuts for the wage earner 60 days down the road. It was hoped that at that time, which by the way is now, both sides of the aisle and the president would be in a more cooperative mood. But, it appears that they still aren’t ready to make a deal.

But, for me, there should be no deal.

If you don’t know, you should, the few extra dollars in you paycheck are coming at a high cost. The payroll tax cut is really a reduction in the Social Security tax that each of us pay. That means for as long as the tax cut is in place, Social Security is getting less money. Less money for a fund that needs every cent it can get right now to stay balanced. (Some may say that the fund is broke. While I don’t believe it, that is for economists, not this blog. But, if we don’t fund it like it should be, it will be broke and we don’t need an economist to tell us that.)

Also, at the same time all of this is going on, we are asking those that make more money than 99% of us to pay more taxes to help out. I think it is a good idea. We have a budget issue, we have a down economy and we need to help those that are in need get through this. We can’t do it if we are afraid to ask those that can help for little more.

Why is it that we that are earning wages are asking for a tax cut when we are asking others to pay more in taxes? It shouldn’t be that way because we are all in this together. To ask one side to help and not expect it from ourselves is, well, selfish.

With that said, I say we should let the payroll tax cut expire for wage earners. Take the few dollars more to help the overall budget and keep funding Social Security. Also, let the high income tax cuts expire. We can’t keep asking others to pay more in taxes when we are giving ourselves a tax cut.

This is our community and we are all in this together. Let’s start thinking that way.

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A common defense is the first purpose of government

As the election cycle approaches, those that are running for office including the presidential suite, will be telling us all the things government should or shouldn’t be doing. If we don’t layout a frame work of the purpose of government in advance, we could be pulled in many directions. We will also shift our own positions a dozen times as we hear good words from each of the candidates at all levels.

In the last post we outlined four primary pillars. They are protecting, educating, innovating and building. Clearly, the first, protecting, was the first reason individuals decided to create a community. Living together in an agricultural setting made individuals and families venerable to outside raiders. If everyone in the community came to the defense of any individual, the outside attacks were less likely.

Life in a community has evolved since that time and the definition of a common defense has expanded. Now there is still the risk of outside invaders. A strong military is needed to protect the territorial boundaries of the country. Not only from other countries with their military but also from their business practices, non military invaders, migration and diaspora.

But threats to the individual and the community come from three other areas. First, there is the criminal threat. This threat comes in big and small packages. It, of course, comes with the common criminal that local law enforcement can tamp down, but also from large organized criminal operations. This needs a national law enforcement agency that can move around the country where ever the threat exists.

Second, there is the threat that develops when there is a lack of standards in business, medical, construction and other industries. By establishing and maintaining common practices and standards, those that are honest can depend on them and those are not can be stopped.

Finally, the last is our own civil rights. This not only includes the encroachment of government on the individual’s liberties, but also those that would like to marginalize individuals that don’t fit a very narrow mainstream definition of behavior. It is just as important to enforce laws that prevent criminal activity as it is to prevent marginalizing individuals whose behavior may not be common, but their actions do not cause any injury or loss to any other individual.

As you can see, defense comes in many forms and at many levels. The ability of a community to defend individuals from many threats is the first priority of government. By creating an environment that allows individuals to freely live their own lives is the healthiest environment for the other three pillars.

More to follow on education, innovation and building.

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Home prices are at their lowest in years, so are property taxes

Home prices in Michigan are the lowest they have been since 1994. Local property taxes that are collected based on the value of the property are, of course, at their lowest in many years. The rise and now the fall of property taxes have placed many local budgets in a crisis. That is why there should be no property taxes based on the value of the structure for individuals or for businesses.


As an example, in Wisconsin, they are running into trouble on the taxes placed on property based on the value. In 2008, a Wisconsin state law allowed local communities to place a limit on the type of challenges that individuals and businesses can make on their property taxes. Local communities were allowed to limit the challenges to the local Board of Review only. But, a large rental property owner sued to have a court review its assessment. The state’s supreme court recently rightfully ruled that individuals and businesses have a right to challenge the tax assessment beyond the local board of review, in support of due process. This means that communities in Wisconsin and around the country are going to have difficulty preparing budgets because there will be challenges to the revenue stream.

Property taxes are one of the most arbitrary taxes we pay. The amount of the tax is based solely on what a local Board of Review thinks the property is worth. The value of any property can’t truly be determined unless it is sold or is used to generate income. But even after a sale, the value of the property may change dramatically from year to year based on issues that are market driven and out of the control of the property holder.

Additionally, those that pay the highest property taxes; homes with high value, homes that have been improved or property that generates income; are those that help the community maintain the overall property values of the community the most. To tax them more, based on arbitrary values, is counter productive.

Communities need stable revenue sources to provided needed services. Even the most minimum of services, like police and fire, will have a consistent cost from year to year, rising with inflation and other factors. Over the last few decades, property values have increased enough to provide communities with a growing revenue source that kept ahead of inflation. But in the past couple of years, that has all changed. Property values are now falling, forcing down the amount of tax revenue received.

Local communities need to base the taxes collected for local services based on another idea. The way to approach this might be on “unit” collection. All property would be valued not on market value, but on size and type of property. All vacant property would have one tax based on the size of the property. Residential housing would have another value based on the size of the lot and the square footage of the structure. The larger the structure, the more tax. Commercial, retail and industrial would have the same concept perhaps just different numbers and taxes.

Details do need to be worked out. But, a stable revenue source for communities would mean that services won’t be cut just because revenues are down. Property owners in a community would also know from year to year what their obligation will be. If the value of their property rises, they will not suffer because of it. Finally, an improvement in the individual housing or business unit property wouldn’t mean that there will be an increase in taxes.

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An arguement for small communities

People have, as it is said, voted with their feet when they left the City of Detroit for other places. The other places are both to the northern suburbs and other states.

Yesterday, the United States Census data was released for the City of Detroit and surrounding areas. It shows that the population for the city is as low as it was a hundred years ago, down to just over 714,000. The counties of Macomb and Oakland showed small increases. The increases were not enough to keep the state of Michigan from losing population also. It was the only state that lost in the last ten years.

Dave Bing, the mayor of Detroit, has said that he will fight the numbers. He claims that the city was under counted by about 40,000 people. If the mayor can raise the count to over 750,000 it will enable the city to keep more state and federal dollars rolling in than at the lower number. But, none of the reasons he provided for the under count sounded very positive. The truth is, your honor, Detroit is suffering just like the rest of the region.

Detroit and most of the surrounding cities like much of Michigan will have to make do with less. Less people, less tax dollars and less sales for the businesses that employ the residents. With a lower population, revenue sharing from the state and federal government will not be as great. Yes, most revenue is shared on a population basis so there will be a cut. But, less people will also mean less representation in both the state and federal governments. States that have more representation will now demand a bigger share of the dollars.

But, there is something else going on that most don’t know about. It is the Headlee Amendment. With property values falling like they have because of foreclosures and people leaving the state (creating less demand) taxes generated from the property are also falling. Cities are having to work with budgets that are far less than they were just a few years ago. Services are being cut, personnel are being laid off and the security of communities is being affected. Many people are assuming that when property values start to grow again, so will tax revenues. But, the Headlee Amendment only allows a small increase in property tax revenues each year. Local governments now need to examine every means possible to make up for the loss of revenue over the long haul. They could ask for a Headlee override, but that is not likely in the short run.

Another way is begin consolidating services with other communities or create regional consortiums to provide base services. Michigan Governor Rick Snyder in his government restructuring drive, is planning on asking the legislator to reduce revenue sharing to communities that don’t consolidate services with other communities.

Tight knit, well run communities may not want to consolidate with neighboring communities. The communities that they may need to consider consolidating services with may not be very well run. They also may have other problems like high unemployment or crime that wouldn’t make it a good fit.

But, let’s move back to the opening of this post. Detroit is losing population because people don’t like the way the city is run, they can’t make a good enough living, because crime is bad, or, for a long list of other reasons. If a community creates a large, intertwined system of services with other communities, people will not be able to just move across the street to avoid the problems in one community. They will have to either stay put and suffer or move much farther away, like out of state. Neither would benefit the local communities or the state.

With few exceptions, many small players is always better than a few large players. This is true in business and government. In business, many small players means no one business can dominate the market, if one fails there are plenty more and competition is much greater. Government works the same way. If people live in a region with many small communities, if one community turns bad, they can leave and go to another. But, if there is a large, regional consortium that is managing the entire region, there is nowhere to go except far away.

If the latest Census has taught us anything it is that people will vote with their feet. If we move to consolidating many of the small communities that we have now, we run the risk of people leaving the state.

Let’s not go there so people will stay here.

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Oil is our heroin

It is interesting that the Tea Party can get so upset about the new Health Care law and how it abuses the citizens of this country, yet ignore the most obvious signs in other countries that they are abusing their own citizens.

The Tea Party, for the most, grew out of the anger from the Health Care legislation. There were, of course, many other reasons that the Angry Crowd finally organized to try and “take back” America. (As if someone had actually “taken it” in the first place.) We all remember the angry faces at the health care town meetings around the country claiming that the legislation was taking away our freedoms. There are also a big reason the conservatives won many seats in congress in the last election.

Part of the mantra the party use was to cut taxes, thereby, cutting the size of government. The size of the America government, or so they say, had grown to the point that it threaten our civil liberties. By cutting the flow of cash, governments would have to make deep and dramatic cuts, reduce the bureaucracy and let the people take more control over their lives.

But, the moment we apply that philosophy to another issue, the same people that want to cut the flow of cash to their own government, will not take the necessary steps to stop the flow of cash to many other truly illegal governments around the world.

What is the other issue? Oil. It is the heroin of our culture. We don’t care what the pusher man does as long as the oil continues to flow across the ocean to keep our way of life going. It is believed that only oil can fuel our way of life and to lose it would cripple us in such a way that our economy would collapse around us like castles of sand on a beach.

But, the reason there is such unrest in the parts of the world right now is because we have supported governments that really do oppress their citizens. The only reason we do this is because they have oil that we want or because they support us in making sure the oil keeps flowing.

This blog is not about economics and only occasionally has anything been written about it. This particular post is not about the economics of oil directly. This post is about oppressing people indirectly and not taking any responsibility to stop it.

Some say that we should leave it to the market to guide our actions. But markets aren’t always correct. If it were, the cost of oil would be higher than it is now because it would somehow include the cost of oppression, the oppression that the countries that supply our oil visits on their citizens. All those countries that supply oil to the world such as Venezuela, Saudi Arabia, Iran and other theocracies and outright totalitarian regimes would not be able to sell their oil on the market if it included the cost in human suffering because it would be so much higher. Countries that supply oil that are legitimate governments would be able to sell their oil much cheaper.

But that isn’t to say that we should ignore markets all together. We can use them in a responsible way that helps us realize the true cost of a product, in this case, oil. By raising the cost of oil artificially in a steady, regulated way, the market would know that in a year or two what the cost of oil would be. So would the average person in the community. The economy could plan ahead instead of blindly watching the cost of oil on a daily basis and making decision that are short term.

We should tax oil and perhaps other energy supplies in a modest, but growing amount each year, if not monthly. The increase in cost would push the market in the direction that we need it to go, to other sources. The additional revenue would help pay for the deficit.

With less oil being purchased, especially from countries that suppress their population, there would not be the funds to maintain oppressive governments that now exist.

We would also not be surprised one morning to wake up to the news that more and more countries that supply our heroin is now in turbulence.

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Living Up to Our Responsiblities

Gwendolyn Burton is a responsible member of the community. She has worked hard, apparently paid her bills, and expects other people to do the same. But the community is not living up to its responsibility according to an Oakland Press article on line, April 10, 2010.

In February of 2007, Burton’s home was damaged by an electrical fire. When she received her insurance claim she contracted with Rick Ballard to repair the damage. Apparently, Ballard claimed he was a licensed contractor, but wasn’t. Burton paid for some of the work in advance. Ballard after a period of time stopped work on the home and would not return Burton’s phone calls. Wayne County Circuit Court Judge Bruce U. Morrow sided with Burton. In August of 2009, 9 months ago, he ordered Ballard to pay $61,000 in restitution and serve some jail time.

Burton has not been paid a dime nor has Ballard spent any time in jail. A warrant has been issued for Ballard’s arrest but no action has been taken. None, nada, zilch.

In a Responsible Community individuals are to live in a responsible manner, one that Burton seems to have done for her entire life. A successful, retired school teacher that now expects others in the community to live up to their end of the deal. But, the court system and its enforcement arm, has not taken any action other than the court order. In this recession, tax revenues are down so agencies have to make cuts. These cuts affect the efficient operation of government. This leaves Burton to protest in front of the contractor’s house, with a home not finished and $61,000 short.

When we formed communities, on the top of the responsibilities for the government was to enforce the law. After all, the deal was that we would not take law into our own hands, leaving that task to the government. But before we all just blame the government, the sheriff department of Wayne County and the courts, let’s take a closer look.

Without enough people to enforce the law, the government has to make priorities. The priority being, hopefully, to enforce orders for the most dangerous and the largest amounts of money. Burton even suggested this when she said she realizes this is not a lot of money in the big scheme of things, but it is big money to her. But, if the courts were properly funded, they wouldn’t have to make a list of priorities. Ballard would be in jail and Burton would have her money.

It is tough in a recession to dig a little deeper to find enough money for taxes. Foreclosures, unemployment, and decreased income have taken a toll on people and families. But the “cut taxes and force government to do more for less” concept isn’t working for all the Burtons out there. As a community we must set our priorities then make the proper investment in those priorities to make it work. And that is just the opposite of what we are doing.

Here is a suggestion. The next time we vote for someone to represent us, ask him or her to make a list of the most important things that the community needs to do. Since Burton and the rest of us agreed to not take things into our own hands, enforcing the law should be right on top. Now, here is the hard part, if you agree with the priorities, be willing to pay for them. If that means increasing the tax rate during a recession to make up for the lost revenue, then agree to it.

If you don’t then you aren’t living up to your side of the deal. Crime will increase, there will be more Burton’s out there and someday, it will be you.