Reporters interviewed several people on the impact of President Obama’s proposed repeal of tax breaks for oil and gas. They omitted one key person: anyone who has completed the first-year principles of economics class at LSU. That student could accurately predict what will happen if this repeal goes through.
First, because the demand curve for oil and gas is very steep (the student would say very inelastic), the majority of the new taxes would be passed on to consumers in the form of higher gasoline prices. We are complaining about higher gasoline prices and proposing something to drive them even higher? Brilliant. Secondly, there will be less oil and gas produced in this country, making us even more reliant on foreign oil. Brilliant.
Thirdly, a very small part of the new taxes would be absorbed by the oil companies. Here the student would have really bad news for you. ExxonMobil, Chevron, ConocoPhillips, Shell and all the other oil companies pay NO taxes. They are corporations — accounting fictions. Stockholders pay taxes. Guess who the stockholders are? Economists Robert Shapiro and Nam Pham have studied energy company stock ownership. They found:
(1) 43 percent is owned by mutual funds, in turn owned by 55 million Americans with average income of $68,700 (everyone who owns a mutual fund, raise your hand);
(2) 27 percent is owned by institution investors like your pension fund (anyone in a pension plan, raise your hand); and (3) 14 percent is held in IRAs and personal retirement accounts by 45 million Americans.
This is not a tax on oil companies. It is a tax on ourselves. That we would fall for this proposal is a great tribute to the economic illiteracy of our people.
Baton Rouge, La.