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Contributors: Douglas McIntyre Jon C. Ogg

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Tuesday, September 05, 2006

Attention Congressmen- Why taxing Big Oil is NOT the answer & a possible solution

I normally don't like talking about taxation & political issues but after reading & hearing several times about taxing Big Oil, i've decided to dedicate this post to why taxing Big Oil is not the answer & what is the answer from my prespective.

The oil industry is highly cyclical. As energy companies are clocking up big profits now at a high price, they were bleeding red ink when barrel prices were around $10 less than a decade ago.


Senate leaders proposed a $100 gas-tax rebate for every American family in May, they intended to do so by repealing the LIFO inventory-accounting method for oil companies. These drastic measures have been taken by congressmen this year, especially due to upcoming midterm elections.

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Instead the congressmen should encourage consumers to hedge their gas budgets by owning shares in the oil companies which operate as income trusts. Examples: BPT (even with their pipeline troubles, BPT still looks great) & SJT, to mention a few. These stocks not only offer great dividends but reward investors with the upside of oil, alongside being a hedge.


Investors should note this tax has been tried and failed. President Jimmy Carter imposed a very similarly structured tax in 80s, resulting in huge compliance costs, minimal federal revenue and a steep decline in domestic oil production.


The Congressional Research Service estimated that the impact of the tax was an annual decline in domestic oil production of between 3% and 6%.


It is preposterous for the Government (President G.W. Bush was not in-favor) to retroactively prohibit a business practice that is consistent with proper accounting principles, and moreover violates the foundations of capitalism on which American firms have thrived over decades.

I hope i've been able to persuade readers, who believe taxation is the way to go, as to why it isn't & the possible solution for the time being, other than promoting alternate energy investments.
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