Part 1

Many times for over a year I’ve decried the foolish headlong government plunge into ethanol. Basically anytime the government anoints a winner in the marketplace the government will be proven wrong for any number of reasons. One of the many predictable outcomes of increased governmental support for ethanol, higher food prices, has become a reality.

The Washington Post had a good column recently aptly titled “Ethanol’s Failed Promise” that outlined the many flaws with biofuels. I was particularly amused by the line, “Food-to-fuel mandates were created for the right reasons.” Ohhhh, the liberal’s lament. It’s always about good intentions with them, not sound, well reasoned policy. Any degree of government interference is justifiable if your heart is pure.

Seriously, who thought it was a good idea to use precious arable land for fuel production instead of food production while there are still people starving in the world?

Part 2

On a related topic, I recently wrote that John McCain’s proposal to eliminate the federal fuel tax for the summer revealed his lack of adherence to the global warming creed. Eliminating the tax would encourage more consumption of fuel, which is exactly the opposite of what a devout global warmitarian would want. Now the Wall Street Journal has come to the same conclusion. They state that proposals such as McCain’s make “a hash out of the climate-change policies that the candidate purports to favor.”

If such politicians were honestly concerned with the survival of our species their recourse would be simple and easy to make: artificially force up fuel prices. Tax it. Regulate it. Bludgeon it to death. Instead what we get are politicians who seem to be eager to just gain more power and control since their contradictory cocktail of policies belie their tenuous belief in the man-made global warming faith.

Update: More on McCain’s hypocrisy from Newsweek:

[A]ttorney and former GM exec Frank Dunne finds the climate-change hawk’s call for a gas-tax holiday “intellectually dishonest.”

[Tom Kloza, energy analyst with the Oil Price Information Service] goes a bit further, calling a gas-tax holiday “caca.” “It represents pandering. You’re not leveling with the American public,” says Kloza.

Good news from the AP:

Alabama’s reputation as a low tax state is supported by a new national study that shows Alabama’s business tax rate is tied for 14th lowest among the states.

The study done by Ernst & Young reported that Alabama businesses paid $6.2 billion in state, county and city taxes in fiscal 2007, which represented 4.6 percent of the gross state product.

Among neighboring states, Alabama’s percentage was lower than Mississippi’s 6.3 percent and Florida’s 4.9 percent. Alabama tied Tennessee and was higher than Georgia’s 4.2 percent.

Not so fast, though. It is true that Alabama has pretty low corporate taxes - relative to the other states. But, as I mentioned recently, there are only two countries in the entire world (Japan and Germany) with higher combined national and regional taxes on business than here in Alabama.

John McCain has proposed a federal gas tax holiday in which the federal tax on gas and diesel would be repealed from Memorial Day to Labor Day. The gas tax is just under 20 cents a gallon and the diesel tax is about a quarter per gallon. While the proposal has one possible redeeming quality, it is poorly thought out and revealing.

First of all it a bit dubious to suggest that the government can control prices in the manner McCain is suggesting. Gas costs as much as it does because of demand. If the government removes the tax and the price decreases then demand will increase correspondingly and push the price back up. It probably wouldn’t be a zero sum game, but it certainly wouldn’t be as great as what McCain is claiming.

What I find most interesting, though, is the fact that McCain, a well known global warmitarian, would pursue a tax policy that would increase use of one of the products that his ilk loudly proclaim is bringing about the end of the world. I don’t know about you, but if I really believed that internal combustion engines were going to cause major cities to by underwater in a few decades I sure as sin wouldn’t be encouraging the use of gas. Every single warmitarian liberal who whines about gas prices or - better yet - advocates lowering them is either confused or dishonest about their real adherence to the warmitarian sect. If they were strong in their convictions they would be pushing for higher gas taxes to discourage consumption and stimulate a private sector generated alternative.

I think policy proposals like this one lay naked the true intent of the warmitarians. They don’t really want to save the world. If they really felt the world was in mortal danger they would be willing to make tough choices. If you knew that an asteroid was going to hit the planet next year and wipe out all life I doubt you would be calling for taxes that fund NASA to be cut. No, their pursuit is one of control. They are engaged in a long term campaign to encourage people to voluntarily cede their freedom and give increased control to politicians and bureaucrats.

McCain’s proposal would have one possible silver lining in the unlikely event that it became a reality. Fast forward to Labor Day. Just imagine the VERY loud cries from Americans when the “tax holiday” expires and the price per gallon increases 20 cents instantly. There might actually be a little pressure for the repeal to be made permanent.

You can see Barack Obama’s 2000-2006 tax returns here.  It seems that his charitable giving is a function of his aspirations for higher office.

Neither Hillary Clinton nor John McCain’s have released their tax returns.

A leopard cannot change its spots.  Bob Riley wants to raise taxes - again.  This time he’s using a favored ploy of liberals by arguing that we should raise the taxes on businesses, or to be more specific a particular business in this case.

From CNN:

Gov. Bob Riley is trying to raise taxes on Exxon Mobil Corp. and other oil companies with natural gas wells along the Alabama coast, but his search for support in the Alabama House may produce a dry well.

House Majority Leader Ken Guin, D-Carbon Hill, said Wednesday he doesn’t believe the Republican governor will have much support when his tax increase bill comes up for consideration March 26 in the House Government Appropriations Committee.

…

Riley’s bill would change the state severance tax on natural gas wells from a value-based tax to a volume-based tax. State fiscal experts estimate it would raise the amount paid annually by oil companies for natural gas wells along the coast from $40 million to $80 million.

A sharp eyed reader pointed this out to me during the first week of this year’s session after reading my post on the tax plan when Folsom was advocating it.  The bill, HR256 sponsored by Rep. John Knight, has the initials “EBO” in the header, which means that the Executive Budget Office birthed the bill.  I didn’t have time to blog on the topic at the time and it fell off my radar.

In case the intro to this post wasn’t clear enough, my opinion on this tax increase hasn’t changed from what I said earlier.  I think that it wreaks of retribution taxation and might not even be a sound long term tax plan.

The Tax Foundation has released statistics of corporate income taxes in America.  The results are disturbing and really equate to an internationally recognized “closed for business sign.”

The federal corporate income tax rate of 35% alone is the world’s highest, although there are a whopping three other countries - Japan, Germany, and Canada - whose combined national and sub-national income taxes exceed just the U.S. federal corporate tax rate.  France has lower corporate taxes than anywhere in the U.S.

Iowa is the worst offender with businesses paying a whopping 42% in combined federal and state income taxes.  This gives the state the dubious honor of having the highest corporate tax burden in the world.  They are one of 24 states whose combined corporate tax burden is higher than in any other country.

Even here in notoriously low-tax Alabama our flat 6.5% tax on corporate profits makes our combined (and adjusted) state and federal taxes nearly 38%.  In other words for every dollar a corporation earns in profit the government takes almost 40 cents.  There are only two countries in the entire world who are less business friendly than Alabama.

But don’t pay attention to statistics like this.  You just keep thinking that corporations are bad and that they aren’t paying their fair share.  Pretend they don’t pass those taxes on to real people anyway.  Keep your head in the sand and pay no attention to the fact that our tax code pushes away prospective and current employers.

For those who are interested, there is a better way.

The Democrats just voted in favor of a $683 billion tax increase.  Just wait and see what happens if they control the White House as well.

Should Alabama’s constitution, a woefully long and cumbersome document, be rewritten?  The group that has been spearheading the effort for the last few years, Alabama Citizens for Constitutional Reform, makes a compelling case, which really isn’t all that hard.  Here are the six main reasons they identify for rewriting our constitution:

1. It restricts local democracy
2. It locks in an unfair tax system
3. It hinders economic development
4. It limits budget flexibility
5. It is the longest known constitution in the world
6. It has undemocratic origins

Just going down the list I’m largely in agreement.  I strongly feel that citizens get the best government possible when that government is as close to home as possible.  I don’t like bureaucrats in Montgomery exercising control over what should be local issues (same goes for the federal government, but that’s another topic).  I’m all for home rule.  Check for #1.

I’ll address the tax issue last.

If someone wants to explain the economic development argument to me in plain English, I’m all ears.  If advocates want to make corporate welfare easier and more widespread I’m afraid you’ll find a foe in me.  Scratch for #3.

The budget flexibility argument deals with how the state earmarks a large portion of revenues.  I think both pro and con arguments on this subject are equally sound (or unsound depending on your point of view).  At this point I’m ambivalent on the matter.  Again, I’m open to your best argument.  Scratch for #3.

Long constitutions are inherently bad.  If average people can’t read (and understand) a constitution in a reasonable amount of time then the document is flawed.  Check for #5.

I doubt 99 out of 100 people gives two hoots about the undemocratic origins of the constitution, but as a novice student of our federal constitution - a document built upon and infused with democratic ideals - such an argument resonates with me.  Check for #6.

So three wins and two TBD’s for ACCR so far.  Not bad.  But now for taxes.

The one saving grace of Alabama’s current constitution is that it makes raising taxes very, very difficult.  Raising taxes in Alabama actually is a very democratic process, rather than a representative one, and I like it that way.  Alabamians have a strong anti-tax streak and I like to think that our elected representative would reflect our feelings if tax levels were left solely to their discretion, but I’m not so foolish as to actually believe it.

ACCR inaccurately frames their argument on taxation.  The current constitution doesn’t “lock in” an unfair tax system.  The Alabama legislature can choose to rescind sales taxes on groceries, medical supplies, or those little testicles that rednecks hang below their truck bumpers if they so desired within the confines of the current constitution.  Similarly they could raise the floor on income taxes.  To be blunt, the ACCR argument is groundless.

Worse yet is the naked ambition of some associated with ACCR to raise taxes.  People like Susan Pace Hamill argue that our state raises “dismally inadequate revenues” due to our current constitution.  What Hamill means when she calls our revenue inadequate is that she wants our taxes to be higher.  I must humbly disagree.  The very birth of ACCR was coupled tightly to a tax reform movement that was not sympathetic to our low taxes.  They argued in 2000 that our low taxes were no longer a suitable magnet for businesses.  Since that time Alabama has enjoyed a protracted strong economy with low unemployment.  So much for the original claims made by ACCR.

There are currently two bills in the legislature pertaining to constitutional reform: SB 243 and HB 308.  Both call for 210 delegates, two from each district, to be elected in non partisan elections.  Both bills removed the asinine language in the previous year’s bills that mandated one male and one female delegate from each district.  One of the two problems I noticed with the bills is that they limit candidates to contributions of no more than $100 from any one source.  Such a low limit on campaign contributions will give rich people a distinct advantage and/or invite shady financing like the current PAC-to-PAC scam employed by some.  The other problem with the current legislation is that both would apply the current lobbying rules for the legislature to the delegates.  Lobbyists can currently spend $250 per day schmoozing legislators and they would most certainly do the same wooing delegates.  That isn’t conducive to constructive constitutional drafting.

My mind isn’t made up on how I feel about a constitutional convention, but I’m very gun shy due to the tax issue.  Regardless I’m quite skeptical that the Alabama legislature would agree to relinquish the power they are accustomed to.  I’m going to make every effort to attend next week’s debate here in town where hopefully some of my questions will be addressed.

National Lampoon’s Christmas Vacation is one of my favorite holiday movies.  The plot line of the movie is something of a warning about banking on getting something in excess of what you are due.  Clark Griswold traditionally gets a Christmas bonus from his employer and he makes the mistake of assuming that he will continue to receive this extra-contractual payment.  He enters into an agreement to have a pool put in his back yard, but he can’t make the initial payment unless he gets the bonus.  As you night imagine, the boss chooses to terminate the cash bonuses that year - without giving prior notice - and instead enrolls each employee in a jelly of the month club (the gift that keeps on giving all year).  Hilarity ensues with the boss eventually being bound, gagged, and delivered to Clark’s house.  In the end the boss realizes that he was a jerk and reinstates the bonuses.

The moral is that it was reckless for Griswold to enter into a financial agreement that he couldn’t meet unless he received the bonus.  Bonuses are essentially gifts from your employer that you receive at their discretion, unlike your regular compensation that you are given in exchange for your labor at a pre-agreed upon rate.  It is certainly not unreasonable to spend such money on whatever you deem appropriate once it is in your pocket, but it is not wise to spend what you do not yet have.

The state of Alabama has recently found itself in a position analogous to that of Clark W. Griswold.  Back in 2003 a Montgomery jury found that Exxon Mobil “had intentionally underpaid the state for royalties due from natural gas wells the company drilled in state-owned waters along the Alabama coast.”  The actual amount of underpayment was around $100 million, but the jury saw fit to award a punitive award of over $11 billion.  A subsequent jury reduced that amount to about $3.5 billion.  Eventually the Alabama Supreme Court threw out the punitive award, leaving the state to receive only the compensatory award plus interest.  So in the end Alabama got every single penny that was originally underpaid by Exxon Mobil.

The problem is that the geniuses who run our state neglected to tend to our general fund because they foolishly assumed they would be getting the punitive award while the case was still under appeal.  They saw it as a convenient means of skirting their obligation to budget within their means - and now that Exxon Mobil’s appeal has negated the punitive award the state is going to have to make some tough decisions (that they should have been making all along instead of lusting for the money they should not have been owed).

Now along has come our Lt. Gov. Jim Folsom to solve the crisis with a bit of anti-business populism.  Having lost the punitive award in our state’s highest court, Folsom has decided to try to punish Exxon Mobil through higher taxes.  In a letter “to the people of Alabama” Folsom calls for the state to switch from a value based system to a volume based system.

You can read his letter in full at Doc’s, but it bears some discussion.  He begins:

If something is not done, the recent decision by the Alabama Supreme Court siding with Exxon and reversing an Alabama jury’s multi-billion-dollar verdict will have devastating consequences on the people of Alabama.

Actually, it would be the government’s poor planning that will have “devastating consequences,” but we’ll press on…

Only the Court’s Chief Justice sided with the people in the case against Exxon that was brought because Exxon was not paying the full royalties they owed for oil and gas they purchased from Alabama wells in the Gulf of Mexico.

In 2003, after a lengthy trial, an Alabama jury said Exxon owed the state $102 million in additional royalties, plus interest, for gas Exxon had pumped from Mobile Bay.

Despite the way Folsom is portraying the case Alabama has been fully reimbursed.  Effectively, the state has received all the money it would have if Exxon had not underpaid in the first place.  I wonder who Folsom and co. would turn to as the scapegoat to pass on the blame for the inaction of our elected officials had Exxon Mobil never underpaid?

The taxes Exxon pays – or should have paid – go to the General Fund, which funds agencies like Medicaid, Public Safety and Corrections, and countless other agencies of state government that touch the lives of Alabamians every day.

Remember, Exxon has paid (or is scheduled to pay) all of the taxes it owes.

Alabama is blessed with wonderful natural resources, but we must require powerful corporations to pay a fair price if they are going to take advantage of our natural resources – like our oil and gas.

Here we go with the “fair price” routine.  As though a politician has any authority or knowledge about determining what a “fair price” actually is.  One would think that the current tax system, which taxes based on the value, or fair market price, of the commodity satisfies Folsom’s desire.

I will be urging both houses of the legislature to look at changing the oil and gas severance tax from a value based system to a volume based system. That way Exxon will have to pay the same way you do — based on what they pump.

More on the “same way you do” volume system later…

You, the people of Alabama, pay your fair share of taxes, whether it is income taxes, sales taxes, property taxes, or gasoline taxes you pay each time you fill up your tanks with gasoline that currently costs way too much.

There is so much wrong with just that sentence that I barely know where to start.  First, it is refreshing, although a bit deceptive, to hear Folsom praise Alabamians for paying our fair share.  I can’t tell you how many editorials and special interest group press releases and reports I’ve read decrying what is often characterized as a tragically low tax rate in our state.  I’m unconvinced, though, that Folsom is now firmly in the camp that Alabama’s tax burden is sufficient.  Again, who is Folsom to determine if the price of gas is “way too much?”  The price is set by the market, not unilaterally by one of a roughly half dozen major oil companies.

You pay Exxon over $3 a gallon, and they pay little or nothing in taxes, while they report record setting profits.

It first bears reminding that of that $3 a gallon gas, 21 cents are Alabama taxes and another 18 cents goes to the federal government.  Folsom points out the “record setting profits” to play on the financial ignorance of many.  Exxon’s total dollar profits are huge because they are a large company, which is something of a necessity in order to take advantage of economies of scale to keep prices as reasonable as possible.  Also, they are competing in the global market place with larger state run companies, so they must achieve a certain bulk to be able to keep up.  But the profit margins, which I’m sure the average Democrat can’t even conceptualize, of oil companies, including Exxon, are quite reasonable, if not paltry, when compared to, say, technology companies.  And for the record, Exxon Mobil made about $40 billion in profits last year, but paid $28 billion in income taxes alone.  I don’t call that “little or nothing.”

I am against any tax increases on the hardworking people of Alabama. To keep this promise in light of this year’s projected shortfalls in our state budgets, it is clear to me that Exxon must pay more.

Again, Folsom presumes your stupidity.  Taxes are a cost of doing business.  If he raises taxes on Exxon they will just charge more for gas and other refined products.  In the end consumers pay the tax.  Worse yet, Folsom could discourage further production of oil and gas in Alabama by making us a high cost state.  That means fewer jobs AND tax revenue.

Now, what Alabama does not need to do to solve any budget problems is blame someone else for our plight.  Alabama’s legislature and governor deserve the blame.  With that established, the next question is whether a tax increase is appropriate.  I personally believe that the best way to stimulate the economy if times are tough is with lower, not higher, taxes.

If, however, higher taxes are deemed justifiable in this situation is the volume based, rather than value based, method the best?  Alabama’s pseudo socialists feign support for a simplified tax code, a noble goal, although I’m suspicious that their support has more to do with sticking it to an evil oil company than with a yearning for tax simplicity.  I suppose they would prefer the simplest tax code of all, the government simply takes it all and gives you back what they deem fair.  Both tax schemes react in opposite manners to commodity prices.  Value taxing, the current method, means that the government makes more per unit (gallon, barrel, etc.) as prices rise.  When prices drop, so do revenues.  With volume taxing the opposite happens.  When prices rise the government does not see any additional revenue and probably stands to lose money as the invisible hand pushes demand back, inelastic as it may be.  When prices fall the government may realize more revenue if demand increases as it should, but then the rate of taxation on the product approaches obscene levels.  In short there is no perfect solution.  I would guess, though, that value pricing would be more resistant to erosion by inflation.  The volume tax would have to be indexed upward periodically, with well funded oil lobbyists fighting each one tooth and nail.

As with Clark Griswold, the state of Alabama got caught spending money it didn’t have.  Unfortunately having a bulging man in a blue leisure suit abduct an oil company CEO won’t solve our problem.  Government officials should owe up to their culpability in this matter and not blame others or attempt to mete out punishment.

Related:

• Alabama and Exxon go to court
• $3.6 Billion Exxon Award Overturned
• Alabama might be forced to refund oil and gas taxes - The roles are reversed as Alabama was forced by the courts to refund excess taxes to oil companies, including, ironically, Exxon.

Huntsville City Schools Superintendent Ann Roy Moore is hell bent on raising our taxes.

From AL.com:

Huntsville school leaders Tuesday affirmed their support for a property tax hike for new schools and renovations instead of a June sales tax increase they said would not be approved by voters.

The position by Superintendent Ann Roy Moore remains unchanged since October, when she and the superintendents of Madison County’s two other school systems urged the county commission to remove a proposed half-cent sales tax increase from the February ballot. The commission bumped the referendum to June.

Moore said a failed sales tax referendum might hurt future chances of raising taxes, so she expressed support for an increase in property taxes.

I’ll give her credit for having incredible perseverance.  She is right that the sales tax measure will fail miserably, but I’m not sure that a property tax increase will find any more success.  Dr. Moore still has to convince Huntsville residents that our schools, which are currently at 61% capacity, need any additional funds.

As usual Jeanne Robinson is the sole voice of reason on the school board.  She said that, “Anybody who looks at our school system knows we have to consolidate.”  No kidding!

Unfortunately Dr. Moore’s consolidation efforts have been limited to closing two schools and replacing them with a new one.  There are other ideas, though:

To further save money, Moore and schools’ Finance Director Herbert Wheeler said the system will consider not replacing teachers who leave the school system and shuffling teachers around schools based on need.

Wow, what brainiac came up with those ideas.  It should be their standard operating procedure to adjust their labor resources to meet their needs, not some extreme measure taken only when they want to shake down the public for more money.  And not replacing unnecessary teachers - whoa, lets not get crazy.  This is the kind of foolishness you have to deal with when you’re talking about a government run, union dominated monopoly.  If the schools had to compete for students I guarantee you that they wouldn’t wait until they thought they were in a financial crunch to exercise wise hiring and staff allocation practices.