Bitcoin Forum

News source  U.S. bill ending oil company tax cuts clears Senate hurdle. (http://www.reuters.com/article/2012/03/26/usa-oil-taxbreaks-idUSL2E8EQ6N620120326)

I know it is politically advantageous to say you voted to tax the oil companies, but don't politicians realize that taxes is also a cost of doing business.  If the cost of doing business increases either a company wills top doing that business or raise prices.  They can't run a business and sell the product for less than their investors demand.

Are they trying for Trickle-down Taxation now?

Oil companies can cope.  The energy sector is booming.  If taxes are needed, surely the sector that has cash flow to pay them are the sectors to collect from?

EDIT:

wft - http://www.reuters.com/article/2012/03/26/us-usa-tax-bigoil-idUSBRE82P0DX20120326

13% tax on a hugely profitable company that gets subsidies for its drilling costs and you are complaining ?

I'm honestly not sure how these subsides work, but why not just stop the subsides rather than raise taxes?

Because then the sites will be drilled by foreign state owned or subsidised firms and the profits will be taxed in foreign jurisdictions.  The subsidy is like the government investing $1 and getting several $100 back.  Raising taxes on the profits is the government getting an even bigger return on the initial investment.

Yea I complain because the tax is essentially paid by the consumer.  If I am a street vendor that sells hot dogs and the government increases the tax on hot dog sellers then I will charge my customers the original price + the new tax amount.  When a government increases a tax on a business then they are making that business a tax collector as that business just increases the prices on the goods or services they produce which is paid by the consumer.

Um no. It reduces the dividend the company pays.  The consumer pays the maximum he can be charged regardless of the company's costs.  If the consumer is being undercharged, the directors are in breach of their duty.

It will discourage oil production, reducing supply, driving up prices. Though, I don't know if this will affect the pump price much, initially.

Not true.  Oil production is profitable and the market will ensure that the oil gets produced.  Remember, the tax credit only matters AFTER the company has covered its costs and made a profit.  So oil production and supply won't be affected.

The oil companies charge whatever the market will bear.  That is a legal obligation on the directors of the companies.  As far as I know, you could reduce all corporate taxes to zero and it won't affect oil prices, but I'm happy to be corrected on that.

according to your argument, if we tax 99.99% of oil profits then oil production will not be affected. No, it won't directly affect what they charge, but it will drive all capital away from the industry.

supply will be affected and hence so will price.

Good points if only oil companies paid that rate.  However, if all companies were taxed at 99.99% of profits, oil would still be drilled as the return on capital invested in oil is better than most other industries.

To be fair, that's a bit theoretical isn't it?  13% is a long way from 99.99% and right now oil companies pay less than most even though its a more profitable industry.

You are correct, but your argument isn't relevant. Increasing the tax on oil doesn't just raise one company's costs, it raises *every* company's costs. You are quite correct that if something just raises the costs of one provider of a competitive good, most of the price cannot be passed onto the consumer. However, if something raises the prices of an entire market sector, most of the price will be passed on.

The exception would be if there was easy good substitution from markets not taxed, but in that case, the tax wouldn't raise much money and would instead shift the market to less efficient goods. For example, if you did heavily tax oil, the result would be that for some uses where oil was maximally efficient, less efficient energy sources for that use would be substituted.

Here's the reductio ad absurdum to see why: Say gasoline is selling for $4/gallon. If the government taxes just Exxon $4 per gallon of gas sold, Exxon can't charge $8/gallon to make up the tax. They'll just have to stop selling gasoline and the prices will go up just a bit due to the increased competition. But say the government charges every company that sells gasoline $4/gallon in taxes. Surely you don't think the price at the pump will still be $4 per gallon.

I agree with your logic.  asdf made the same point.  A tax on oil would indeed raise prices.

However, the OP linked to a story about tax credits that are given to oil companies and no-one else.  Its not a tax on oil - its the removal of subsidy that helps oil companies pay less tax on their profits than most others.

In the end, in order for economies to become sustainable, one has to tax that which we want less of. One thing that we necessarily need less of are processes which consume more of the Earth's naturally produced capital than the Earth can produce per unit time. Such things typically are clean atmosphere, oil, natural gas, food, and most importantly, flora and fauna, since the Earth's flora and fauna contribute to the recycling of everything.

Identifying and taxing such processes shifts competition, and by extension, research and development into processes which are sustainable.

See link: http://seedmagazine.com/content/article/rethinking_growth/

The purpose of taxes is to fund the government, not manipulate the market. To deal with externalities, estimate the cost to society and charge more for drilling rights.

Oh, okay. If you say so.


Oh, you mean tax drilling rights, and thus manipulate the market?

It's not a tax it's a fee.

Obviously tools can be used incorrectly, and this is my opinion.

Two different words, one effect.

All taxes which fund the government manipulate the market.

That's true, however some methods of taxing do so more than others. People should want their governments to avoid picking winners and losers as much as possible.

You need to apply the bigger picture. Read this: See link: http://seedmagazine.com/content/article/rethinking_growth/

I think this is an interesting analogy:

http://buffonescience9.wikispaces.com/file/view/bacterial-growth-751228.jpg/210626628/bacterial-growth-751228.jpg

The above is how "lab-cultured" microorganisms behave. If you grow bacteria on "minimal media", which reproduces the usual natural environment more accurately, they do not do this. Instead there is an extended stationary phase. Interestingly if you collect the bacteria/yeast/whatever still surviving at the end of the death phase, they remain in an extended stationary phase even when given excess nutrients.

Interested, link to source if you have it.

Here's one:
http://www.its.caltech.edu/~skopf/ESE_Bi168/files/nrmicro1340.pdf

To be honest this is not my field so I can't vouch for the methods, but my understanding is that this is well known (even common sense) amongst the people working with microorganisms.

bacteria cannot innovate or grow their means of production. false analogy.

"Bacteria" (as in populations of bacterium) can innovate, it's just ignorant to say otherwise. As for "grow their means of production", what is "means of production"?

It is a bad analogy. Technology and it's increasing rate of innovation is the key which has allowed the free market to exploit the Earth's natural resources at an ever faster pace.

Key concepts:

- Overkill hypothesis (an example of technology causing massive changes to the environment)
- Sumatran rhino (an example of diminishing supply failing to diminish demand)
- Singularity (an example of accelerating trends which lead to increasing consumption)
- Poaching (an example of resource depletion until there is no more)
- Steady state economics (what is needed)
- Big Oil (an example of the free market hindering progress and encouraging resource depletion)
- Marketing/consumption vicious circle (an example of the free market sustaining its own excessive consumption)

Free markets have nothing to do with reality. Blaming the free market for something is delusional.

Saying it doesn't make it so. Attempt to demonstrate the truth of your statement.

Please explain your theory within the context of the key concepts I enumerated four posts back.

I'm not sure debating the nuances of whether or not free markets actually exist is worth our time. I think if there are taxes, legal tender laws, bank holidays, etc there is no free market and participants should not be expected to act as if there was.


Interesting, because to me this is why the analogy works. Humans have been "lab-culturing" (or domesticating) themselves on cheap energy for a number of generations now. I believe inflationary economic policies have accelerated this process, but the underlying driver is technology and cheap energy.

Markets only exist under the protection of some legal authority.  Without that authority, the shops would get looted and contracts would not be honoured.  Since it costs money to provide that legal protection, you can't have a free market without taxes. 

However, taxes don't have to be on the goods traded so they won't affect supply and demand in any meaningful way.  So free markets are possible. 

Guess they are a creationist...

So by your definition the black or grey markets are not free markets?

Obviously without police you need to pay for security.

Correct.  Even where the goods are being traded legitimately, the price on the black market is pushed down by the lack of legal protection.

Down?! So drugs would cost more if they were legal?

No, it's the reverse. Prices are pushed up by the need to provide your own protection and to compensate for the increased risks associated with a black or gray market. (Can't enforce contracts in court, might get arrested, etectera.)

Bacteria can evolve, sure, but not in one isolated "minimal media" experiment. If you put some humans in a box with some food and left them there then your bacterial story might be analogous to that.

Means of production is land, labor, capital. In particular, bacterial do not have capital; machines, technology, etc. which can be used to increase the efficiency of production (get more value for a given unit of resource). As physical resources deplete, so will the efficiency with which we use them to produce value to the market. As various resources become more scarce, their price will increase, driving the market to more efficient alternatives (ie. renewables will become more economically viable).

This process will not cease; the problem of finite resources is not a problem to a rich market economy, only to bacteria in a dish.

Sorry, but the theory doesn't work so well in reality. As resources become more scarce and prices rise, there is still a minority that can afford the last of the resource, and it disappears forever.

The free market did not save the near Blue Whale extinction from occurring in the mid 20th century. Regulations did. You might want to research Sumatran rhino horns to see how things really unfold.

The reasons?

1. There's enough individuals who don't care if a resource is depleted as long as they can get their take. (Japanese whalers)
2. There's enough individuals who are ignorant of the future value of said resource for other uses. (Old growth forest depletion)
3. There's enough individuals willing to harvest the last of a resource precisely because of its super high price. (Sumatran rhino horns)
4. There's enough individuals who will insist that the resource isn't near being depleted. (Oil)
5. There's enough individuals who believe they need the resource eliminated to be successful in their business model (*Ranchers vs. wolves)

* See wolves and riparian zones for number 5. This is actually a case of number 2 as well.

Aren't pretty much all of these problems solved by private ownership of the resource?

Nobody's going to be owning migrating blue whales anytime soon. As for wolves, you have to understand how what happens upstream (literally) affects you downstream (literally). Ownership is not a tenable model there. Private ownership of old forest growth is helping (the Nature Conservancy). But it's not happening fast enough, and it ultimately requires cooperation with multiple entities at the global level. Private ownership of Sumatran forests is not likely enough to prevent poaching.

As for oil - well, who knows? There are so many issues there.

Right, but that's because of choices our world has made. I'm suggesting that if we care about this problem, we should start making different choices.

I don't understand why you think that is. I understand that what happens upstream affects you downstream. If you're downstream and upstream is owned, you can pay the upstream person part of the value you gain from their conduct. If you can't afford to get them to improve your downstream value, it's likely that you're overvaluing it or undervaluing their costs. It's easy to think the benefits exceed the costs when you don't have to pay the costs. I'm saying we'll get smarter behavior all around if those who reap the benefits are the same as those who pay the costs.

Again, that's because of choices we have made. I'm suggesting we should make different choices.

There's actually no problem with oil, except where it's not privately owned. That oil which is not privately owned -- again, that's the result of choices our society has made. If we care about conserving resources, we should start making different choices -- specifically, private ownership of resources.

Now, where I don't think it works is with certain types of pollution. For example, private ownership of breathable air doesn't seem possible to me, unless you imagine one private entity owning all the air on the planet. So I'll concede that one.

But for most resource conservation problems, private ownership is the solution. We have made a lot of bad choices and should start fixing them.

Since your reply quoted here is the theme throughout your post, let's discuss it.

It's hard to pin the blame on choices the world has made. The World doesn't make unified choices. A global enforcing agency might. Otherwise, choices are made by competing entities (the heart of a free market). It's a sad fact that technology combined with greed, will and ignorance allow irreversible things to happen before technology combined with knowledge and will allow for a defense to prevent irreversible things to happen.

How do we care about a problem? It starts with education and awareness, both in understanding the consequences of actions and understanding that certain actions are happening at all. Who is 'we'? As it turns out, 'we' is an entity with enough foresight and resources to step in and do something. Sometimes it requires a conglomeration of entities. Otherwise, it only takes one group (whalers, poachers, whomever) to quietly go about their business.

Ownership works to a point, I agree. But is ownership of migrating whales as feasible or desirable as what really allowed the Blue Whale to make a comeback in the latter half of the 20th century? Is ownership a better model than what really was implemented? Which solution was doable? Which solution was enacted?

Who is to say what an owner will do? Different owners value their property for different reasons. Ultimately, the current owners of whatever will cease to be the current owner. Then what? Parents spend their children's inheritance, and why shouldn't they? Likewise, who is to say that an owner won't decimate what posterity would value?

Regarding upstream and downstream: isn't that like the air we breath, which you acknowledge is not an easily solved problem?

Right, but who cares? That's the point. With private ownership, it doesn't matter. The owners can be smart or stupid and the damage they can do is limited. Resources will tend to drift towards those who can make best use of them because they'll generally be willing to pay more for them.

The reality is that a non-owner "manager" is much more likely to destroy something of value than an owner. And in any event, I'm not terribly concerned about people destroying their own stuff. I'm concerned with putting people in a position where they can easily get the benefit of consuming things that aren't theirs without having to pay the costs at all.

Not usually, because the set of winners and losers is more confined. Say you do something on your property that benefits you, but I'd benefit if you didn't do it. If you and I are both rational, I can offer you some sum of money in between those two values so that you don't do that thing, and we both win.

This doesn't work with things like air because the transaction costs will kill you. It's not like I can negotiate a deal with billions of people. If we somehow imagined that there were no transaction costs and any set of people automatically entered into any arrangement that was in their mutual interest, then yes, it would work for air too.

The reason this works with private ownership is because the benefits and costs are paid and borne by the same parties. With community ownership, you instead fight over rules that define who can do what. The beneficiaries always want the most, and generally the rules become inefficient. To fix this, the powerful people who want to give less negotiate exceptions and loopholes to the rules others must follow. The result is that politicians allow short-term destruction of public goods to get the money they need to stay in power and our children are left with the fallout. You may think private owners are interested in short-term profit, but that's nothing compared to a politician who needs to win an election.

You make a great point.  I think I was totally wrong :(

If you are right, then regulated markets will always drive unregulated ones out of business.

It depends on what you mean by "regulated". If the regulation acts to hamper the market, then no. For example, there's a legal market in oxycodone, but it has not driven the illegal market in oxycodone out of business. If the regulation subsidizes the market, then yes. If the regulations do a mix of both, then it's a matter of which side wins out.

I agree - by regulation I mean legal enforcement of ownership and contracts.

I think maybe they mean blackmarket goods are cheaper like if you buy an HDTV in the parking lot of a store.  The reason they are cheap is because there is an understanding that the item is stolen and the only cost the seller had in obtaining the HDTV is by stealing it.

Buying cigarettes illegally are usually cheaper because the seller is not paying the taxes on the smokes.

For drugs it would likely be less expensive unless they were taxed.  Except for cannabis, LSD, and psilocybin, the price of drugs would likely decrease if they were regulated by the government because most of those other drugs are insanely overpriced.  Even if the government did try to regulate the price using taxes people could undercut them by making those drugs or using a substitute.

This gets back to my main point that any tax on a business or the products it sells trickles down to the consumer.  By raising taxes on oil companies their cost of doing business increases.  They will pass on this cost to consumers if the tax is industry wide.  If a tax is not industry wide then they can cut other costs of doing business such as finding other suppliers, cutting labor costs, finding accounting tricks, or by merging with other companies so their size is able to cut the cost of business.

It is illogical to say that raising a tax on the oil industry will reduce oil prices.  More revenue may go into the pocket of the government but that money is coming directly from the consumers.  The oil companies or any company does not pay any tax unless it makes a profit, and they don't make a profit unless someone buys their product.  Investors expect a certain amount of profit and if they don't get that amount they will move on to more lucrative investments.

Well, if theft were legal, they'd presumably be even cheaper. The prohibition on theft holds up the price of stolen goods because people who wish to acquire and deal in stolen goods take risks that legitimate businesses don't.

Right, but they'd be cheaper still if it were legal to sell cigarettes with no taxes. The legal prohibition still increases the costs.

The hypothetical would be if one company were unusually efficient and as a result had a higher than normal profit margin. In this case, a tax on just that business would not be passed on to customers. But this is like the "what if there's a ticking bomb in a school somewhere" argument of why we need to be able to torture people. It almost never happens, but it's brought up to justify a practice that will inevitably used in a wide variety of situations, in none of which does the justification apply.