June 4, 2011
The liberal mindset hits reality again
Steve McCann
There are two constants in dealing with the liberal or socialist mindset: 1) they can never admit a mistake, always blaming it on others; and 2) regardless of the situation, they can ignore historical facts or the tenets of economics and achieve what others have not.
A case in point: In the United Kingdom the government has been faced with rising gasoline prices and a considerable amount of discontent among the public over the high costs. [For the record gasoline cost around US$9.30 per US gallon and taxes account for nearly 65% of the price or US$6.00]
So what was the proposed solution? George Osborne, the Chancellor of the Exchequer [akin to a more powerful Secretary of the Treasury] imposed a windfall profit tax on energy, pushing up the levy paid on North Sea oil and gas companies from 20 to 32%. The proceeds which were supposed to generate the equivalent of US$3.0 Billion were earmarked to reduce the gasoline taxes paid at the pump thus heading off the threat of "summer of discontent".
The result: Per the U.K. Telegraph:
The measure does not seem quite so shrewd now. Centrica has decided to leave idle the UK's biggest gas field, South Morecambe, because the tax rise means extraction is simply not worth its while. You can see the firm's point. When other energy taxes are taken into account, the Budget increase lifted the total tax rate for the South Morecambe field from 75% to 81%. Centrica is better off leaving the gas beneath the sea and waiting for the price to rise, so production once again becomes profitable.
The Chancellor cannot say he was not alerted to this development. John Cridland, the CBI's director-general, wrote to him warning the tax rise has created fiscal uncertainty not only in the oil and gas sector, but right across the industry's infrastructure supply chain. He called for stable tax rates and greater consultation. In this business more than most, predictability is everything. The Treasury was unreceptive.
Aside from being a political problem for the Chancellor, this is an object lesson in the way tax rises can prove economically harmful. While South Morecambe is not producing, it is delivering no tax revenues; meanwhile, the shortfall will be filled by imported gas. So the tax take goes down and the cost to the consumer goes up; not a happy combination.
To the Americans, paying attention to the machinations of Harry Reid, the Democrats in the Senate, and Barack Obama, this scenario is an eerie repeat of recent Senate hearings and administration demagoguery against the oil companies, their profits and so-called tax breaks. The Democrats have proposed increasing taxes on the oil companies as a means of mitigating the high gasoline prices. Anything to avoid the obvious solution: drill for more domestic oil as that would entail a surrender to market factors not government fixes.
One can rest certain that in the addled thought process of the country's current left-wing leaders they can successfully go where others have failed and thwart the laws of economics. The experience of the United Kingdom will be repeated constantly as we, the people, are dealing with the smartest people in any room they might be in, just ask them.
