Oil and Tax Subsidies
Wouldn’t it be great if every company in the RV industry could double the price of their products without an increase in production and still have endless customers clamoring for products? What if on top of that the U.S. government kicked RV companies billions of dollars in tax breaks to figure out ways to make and sell more RVs, more satellite systems, more hitches, more toilet chemicals etc.?
That is exactly where big oil is currently. With capitalism governing the price of a barrel of oil, there may be little we can do about the price we pay at the pump. Some people complain that the government should do more to lower the price but I am not sure if that is even possible.
I guess they could lower taxes tagged on gasoline but that would come at the expense of our bridges and roads. In the last year, we’ve seen news reports that the nation’s bridges are in a terrible state of disrepair, so that doesn’t seem a viable option.
Another thing to consider is just last week, the Associated Press reported that there are gasoline shortages in China and when oil companies offer oil for sale, that oil is going to go to the highest bidder. Sadly, if China is willing to pay $110 a barrel, then unless we are willing to do the same, the oil goes to China. The last thing we need are oil shortages like the industry saw several decades ago.
The oil-producing companies have learned that they can produce the same amount of product despite increased demand from developing countries and get paid far more for the same amount of effort they have historically produced. Realistically, they call this working smarter instead of harder. We would do the same if we could, but that doesn’t mean we have to like it. It appears high gasoline is here to stay.
The real grind is the $18 million in tax breaks oil companies currently enjoy. Senior executives from five of the major oil companies go before a congressional committee today to explain why they still need these tax breaks. Exxon Mobil Corp., Shell Oil Co., BP America Inc., Chevron Corp. and ConocoPhillips, will testify. The Associated Press reports these companies earned a total of $123 billion last year from soaring oil and gasoline prices. Do they really need those tax breaks?
The House of Representatives has approved legislation two times in the last year to end the tax breaks. The revenue was supposed to instead go to booster renewable fuels, wind and solar power. Unfortunately, neither of the House initiatives passed the senate.
I wonder if the tax breaks are taken away, will the oil companies merely pass this additional cost on to consumers driving prices up even higher. The saying, “nothing comes for free” comes to mind.
November 16th, 2008 at 3:11 am
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April 7th, 2008 at 5:08 pm
As an enthusiastic RVer, now retired, and as a former Fuel Distributor I have a view and an idea, that doesn’t seem to be included in any of the above, but first a single line of background.
In the 70s the Oil industry began a systematic process of buying small, then progressively larger refineries. They proceeded to shut them down over a few years time span. Sometimes they even bought a refinery and immediately began the close-down. I am convinced this was their long range method of controlling the retail price competition, which as we see now, was successful.
Solution? Redirect the tax breaks now enjoyed by the oil companies from one based on crude drilling to be based on breaks for building or expanding fuel production IN THE U.S. NO allowances (tax breaks) for imported Gasoline and Heating Oil (including Diesel fuel). Then allow the domestic companies to drill with minimal restrictions (keep the scenery clear by having an “out-of-sight” provision for new wells.
You might also be interested to learn that the prices we see skyrocketing daily are based on the spot market which means Buy Now and take immediate delivery. Most large users, and the oil companies, have long term contracts at much lower prices than we see in daily newspapers. They are less affected than the consumer for obvious reasons.
April 5th, 2008 at 8:21 am
In a free market society profits are expected and encouraged. If we want to restrict corporate profits then we are no longer a capitalistic type society. The drug companies earn large profits along the same line as oil companies, should we start capping them? If we did that why not the RV Manufacturer, lets tell them what they should earn and when their pricing is considered gouging.
The truth of the matter is the government regulates oil companies in different ways that incurs cost unlike any other industry. ( Example: Oil company explorers a geographical area and believes they have found a oil deposit. They then have so many government studies, environmental impact plans and groups to deal with that the cost before they can drill and produce the 1st drop of oil is astronomical, if they are ever allowed to drill.) The Middle East controls the worlds oil because they find it, drill it and produce it without the restrictions we have in place. Then you add the state and federal taxes and you discover the cost of gas and diesel is gouged more by the government then by the industry.
The United States has issues, we have the oil, but afterward we have know way of refining it. We have not invested in a new refinery in over 30 years on U. S soil so a lot of our refining is being done overseas (Getting the oil out of the ground is useless if we can’t refine it). We have not built a new Nuclear Power plant since the 70’s even though it has been proven to be the safest power available, and of course nobody wants us to start drilling for oil anywhere in the U.S. or have a Nuclear Plant in “their back yard”
The answer in a lot of peoples minds is the great Ethanol, the renewable energy source grown from the earth. But the cost is to high, grain prices are through the roof Ethanol cost more to distill then gasoline and because the shortage in the market it has raised the price of grain so high milk is $4 a gallon and the cost of meat is skyrocketing. The plant devastation by some countries to produce Ethanol is creating more carbon dioxide then all the coal burning power plants in the world combined could create in 100 years. So once again the politicians have grasp a idea that winds up costing more then it is worth.
If you want cheaper fuel prices then you have to give up some of the thinking that corporations are bad and are the cause, you must realize that most of the problems arise from taxes and regulation.. This November when you vote, think of this message, that’s where the changes must take place. Use what we have and invest in ourselves.
April 3rd, 2008 at 11:56 pm
Richard, I’m sure John Crean is rolling in his grave! LOL
Anyone who has read “The Wheel And I” would know that was not the way the company was originally founded, built, and operated.
However, it seems to be quite normal in the RV business. Look at what happened to chinook, Western RV, Beaver, etc.
April 3rd, 2008 at 11:37 pm
My opinion (and that of a few others) is the current price of oil is no longer following the normal economic supply VS demand model. Rather…due to the current volatility of the real estate derivatives markets, investors are instead playing the commodities markets. Not just oil, but the grain markets, metals markets including silver and gold are all above historic market prices.
Now, the inflationary result of the above along with the presses currently running overtime printing devalued money to bail out the investment banks, is reducing the price of the dollar against other currencies thereby causing an additional rise in the price of oil.
Now, the Fed says all is in control but I’m not so sure. After spending hours and hours each day reading economic data, I’m beginning to wonder if anyone really knows how to control the current economic disaster.
On another note, I have been reading this forum for a year or so but just have not posted here before. I am retired, not employed in the RV industry, but I do volunteer my time in a RV related venue, own a Class A, and am an avid RV’er. Some may recognize my screen name.
April 2nd, 2008 at 12:36 am
In regards to subsidies and tax breaks for R.V. mfgers, there is one large producer in this country who should not receive any subsidies or tax breaks, this company closed 4 plants in this GOOD OL U.S.A. laid off hundreds of U.S. workers, opened up a plant in Mexico. this companys pay rate dropped 75 per cent, the average worker in mexico earns in an 8 hour day, about 1 hours wages paid to a U.S. employee. this company had to keep one of their service depts open in California to make repairs on the units produced in mexico. the mexican goverment will not allow units built in mexico, to return to mexico for repairs. this began with the model year 2008. this company does not pay the mexican labors any benefits. there are no U.S. regulations enforced in mexico. and you can bet this company had a price increase on the 2008 models. these facts came from employees of this company.
April 1st, 2008 at 6:34 pm
A couple of thoughts/questions:
1. It is my understanding that part of the increases is due to the oil shippments are being paid in EUROS.
2. To investigate: The gov’t “tax breaks” to the oil companies are for them to R&D alternative solutions to bulk oil. Not a bad concept.
3. It was beening found that approx 50% of the US public own stock in Oil Companies thru their Mutual Funds etc. Watch your retirement monies go down !
4.Drilling in Alaska….GO for it NOW! I have been there. This part of the country is flat tundra with a few Caribou and Lemmings (Mice). It is NOT the beautiful tree covered mountains and streams that you see in the travel books or shows. No one will ever miss it.
5.The whole world, including the oil rich countries, are going to Nuclear Energy. It will take us 8-10 years to build a plant, we better start now!
….Now back to work. Regards
April 1st, 2008 at 5:47 pm
Wow, I’m really enjoying this blog. Everyone has made some really great comments here. I think Brad spelled it out pretty clearly but there are so many issues that spin off this topic it’s crazy. Should we drill the Gulf and Alaska? That could potentially mean fewer nice places for RVs to go vacation. Those places are like savings accounts; the longer we don’t touch them the more they are worth. Should we have a gas guzzler tax? My thought is this would have a very negative impact on the industry we know and love. If Dana’s president, I veto that idea. Is how the system works price gouging? It’s hard to say but I know that the way it works now is essntially like an auction. (See Brad’s comments above)
One thing I would like to point out which didn’t even occur to me this morning when I started this blog (You will have to forgive me, we ran out of Folgers this morning) was the point about the value of our dollar. What our money is worth to other nations has an immense impact on the price of our oil and gasoline. Thank you so much for bringing that point up.
April 1st, 2008 at 4:51 pm
The answer, my friends, is not blowing in the wind.
The answer is Hydrogen. It’s not IF it’s WHEN. Hydrogen is the most volatile and the most plentiful element in the universe. It’s by-product from combustion is water.There will be growing pains to be sure but we are the folks who started a brand new country a couple hundred years ago and its now the most dominant country on the planet. Our ancestors put the “industry” in the industrial revolution and our fathers stopped the worst dictators the world has ever seen, in short order.
Our team can figure out the quickest, cheapest ways to manufacture, dispense and use the stuff better than anyone. The most logical medium for this sea change is the petroleum industry but they , at present, lack the motivation. They are taking in Billions in profit - so they can’t make themselves fix something that they don’t consider to be broken.The impetus will come from the great motivatior - Capitalism. When the demand exceeds the cost of development it will happen.
April 1st, 2008 at 4:16 pm
We are not talking a simple issue. The increase in petroleum use by developing nations, the holding of massive reserves by countries not known as our “friends’, the “friends” with their own agenda, environmental groups wanting to eliminate all drilling and refining, increased use within our country……and so on. The rest of the world has been attempting to get the U.S. to the world oil price for over 40 years. Weak politicians, greedy individuals, rogue nations, radical groups…..and so goes another list. The ability to use an RV and escape the craziness, if only for a day or two at a time, only strengthens my resolve that we live in the greatest place on earth. God Bless America !!!
April 1st, 2008 at 3:55 pm
This is a juicy topic!
The fix is so simple but it takes real guts to fix it. We will fix it however because to continue down this road will lead to total ruin. It’s a question of how much damage we will do to our economy before we act. Everything in our economy revolves indirectly on the price of oil. There seems to be no let up in oil pricing. I am not conversant on the terminology used in the trading markets but it appears to me that Brad is correct and that most of the price increases are coming from the traders on Wall Street. We simply have to drill for oil regardless of the environmental concerns or we will soon be a third class nation. We see that China will soon be drilling off the coast of Cuba in the Florida Straights. Where do you suppose any spilled oil will wash up.
That’s not to say that other proposed ideas such as ethanol (using something other than crops), nuclear power, solar etc are not good ideas. They just are not the immediate solution. I am aware that it takes years to bring an oil well on line but I believe that just the announcement that we are going to allow it in the Gulf of Mexico would be enough to drive the profit takers to bail out and thus reduce the price by $40.00 a barrel. It will just take a politician with the intestinal fortitude to spearhead the charge and a well informed public can make it happen.
April 1st, 2008 at 3:35 pm
Pardon the typos - my mind tends to move faster then my fingers sometimes.
April 1st, 2008 at 3:31 pm
Mike - Bingo! Its not taxes and greed that have caused recent staggering increases in refined petroleum, its currency devaluation, excessive demand, pricing based on futures trading, plus taxes and greed.
Wish to see refined petroleum drop in price? Here’s what you have to do:
Kill futures trading and force a hedge only.
Common day civilians that buy 20 gallons of gas at a time control the price of crude oil right now. Millions of people with mutual funds and individual stocks are watching CNN and FOX, seeing the escalating price of oil and saying, “Ooooh, I want to get in on that!” They invest - or invest more money - and the price goes up! If we went back to a consistent hedge, we pay today in hopes of seeing a price adjustment up - but, the price increases some, but most volume buyers control the price at a lower amount which results in an average difference market price. Eventually, the price stabilizes as there is no incentive to bid it up.
Correct some of our superficial market failures to see the US dollar raise in overal global value.
Forget the US Economy - we’re peions amongst what we belong to. If other investors, aside from Americans investing in America, don’t “believe” in the value of investing in America, they take their money elsewhere. As our surplus of cash is depleted from cashed-out investments, our currency weakens against others and then the next guy does the same and so on. So… we need to do what ever is necessary to make investors confident that they will make more money on us (America) and not China, or Germany, or Vietnam, etc and leave their money here. As our dollar weakens, and commodities like oil are traded in US dollars, it takes more money to buy these globally-sought-after goods. However, those using currency aside from ours buy at a value. We suffer and the “price” as we see it, raises until we match their next best offer.
How do we correct it? Quickly? Do what the FED is doing now… calm the daily-watched markets and stimulate consumer spending. Lower the discount rate so businesses can rely on less expensive credit. Personally, I’d find a subsidy or tax credit to allow folks to reinvest in the housing market so rental prices don’t look so appealing and those with the assets and credit to do so, will go back to swapping homes every few years or so and new home builders will continue to develop.
As the local economy, local as in region to national, improves in gross product performance, investors will return their savings to us and our dollar appreciates in value.
Alter the tax base to have a marginal cap on refined oil. Gasoline has a very, very elastic casue. This meaning, no matter what you’re buying it - Americans need gas to go anywhere/do anything. Becasue its elastic and no matter what it costs (to a hypothetical reason), people buy it. So, the government taxes it. If it was inelastic, as in if the price went up even a tiny bit and people then wouldn’t buy it, taxing it would be idiotic. Here’s my point - there is a rhyme and reason to how much you really should tax such things. Placing taxes in the 8-10% range, as is the case in North Carolina, California, and Massachusetts, is too high and really hurting the low wage earning public. But, you have to develop a system that restricts price adjustments increasing retailer market profitability where it may replace the previous tax. (EX: The tax levy released drops the fuel 10% and the retailer just jumps in and raises the price 5% above what it was just becasue the market expects the price to be higher.) What is more practical is a gas guzzler tax like we used to have, tax the largest users in a graduated/tiered system. Its progressive, like our income tax system, and incentivizes smaller levels of consumption. As this catches on, people use less, the demand decreases, and the price decreases as well - but, I digress… we don’t need a sermon.
April 1st, 2008 at 2:42 pm
Last I heard, price gouging was against the law. Funny how the oil companies don’t have to comply. I don’t care what anybody says, our own government is doing this to us.
I just saw a news flash this morning that the price of gas is making the price of groceries go up!! Boy, was I shocked!! They are just killing off the middle class working person, slowly and painfully. Who’s going to buy their gas when all of us are living under bridges because between gas/groceries and all other commodities, we can’t afford to survive?
April 1st, 2008 at 2:39 pm
As I watched (less than two mintues)Bill Clinton campaign for his wife, and talk about high gas prices, I went back to 1995. He was president, and twice Congress sent him a bill to sign that would allow exploration in ANWAR, and twice he vetoed the bill. The estimate given for the amount of time to bring the oil to market was eight years. How different things would look today if we were able to rely on our own resources. Not to mention nuclear energy, a technology we developed, and France uses to generate 80% of their electricity.
Oh well.
April 1st, 2008 at 2:30 pm
Exxon controls 3% of the world’s oil. There profit margin is less than most American companies. They are large sums because they have an extremely large capital base. Governments take is 3 times larger. (They don’t produce, transport, refine or sale, they just suck the money away and criticize the producers in our economy.)
How many times in history do emotional arguments take us to socialism? I’m amazed you hint we need to go to the people creating the problem for capitalism to fix the results they created.
Can’t drill anyplace, can’t create a dirty old refinery, oh, and by the way we want you to solve problems or at least let us blame the people who work so we can stay in power.
Hint, capitalism works, government doesn’t. Expecting and cheering for the one that doesn’t may give some emotional boost but the results are devastating!
Ki Moody
April 1st, 2008 at 2:21 pm
Dana
Way to go bro. Nice jucy topic - you’ll get lots of response to this.
Let me add that - part of this big jump in the price of a barrel of crude is due to the devaluation of our dollar. If we were buying all of our oil from Canada for example, just the decrease in the relative value of the U.S. dollar vs the Canadian Dollar would amount to a hefty increase in the price of gas from last year.
So who is responsible for this devaluation ?
AHHH = another hot topic!