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Republicans and Unemployment
Taxing the Sun
Taxing the Drillers

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What's Wrong with the Flat Tax

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All articles "recovered" written ©Mark Joseph Young, originally published on  All other articles written ©Mark Joseph Young.  This site is part of M. J. Young Net.

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Newark Political Buzz Examiner

Laws are made by politicians elected to office, through a political process that involves negotiation and compromise--usually.  Here we include three unrelated articles about laws which were being considered.

A political satirist once said that elections were always a problem for him, because it was usually the case that one candidate would be good for his country and the other good for his business.  That's not always the case, but we know that the circus we call the legislature can be very entertaining, and will undoubtedly produce more articles in the future.

Republicans and Unemployment

One of my unemployed friends excitedly called my attention to the fact, two weeks ago, that the Senate had reached a compromise and put forward a bill to renew extended benefits for unemployment.  These ended at the end of December, putting many who were dependent on the meager checks for food and utilities in dire straits.  The compromise reportedly included back payments for those who have been without any other income for what is now three months.  My friend wanted to know how long it would be before that money came.

The answer may be never.  As I explained, such a bill would have to go to the House of Representatives, and while the still Democratically-controlled Senate might put through a bill that would spend money to help the unemployed, the Republican-controlled House is not going to be so eager.  Already the argument has begun, as our Congressmen want to strip the bill of the back payments and add other provisions that the Senate has resisted.  It is what passes for negotiation in our present polarized political stage:  we will not give you what the country needs unless you give us what we want.  Both sides do it.  It just happens that at this moment the Republicans are doing it.

It seems a very foolish position to take.  Desperate people are looking for that money; they have unpaid utility bills that have been building as they hope for some kind of breakthrough, and this might have made a difference.  It might have put some of them in a better position to find work.  It certainly would have acted as a stimulus for the economy--the unemployed are going to spend whatever money they can get, not sock it away in a mattress somewhere.  These are not people who do not want to work.  They only receive unemployment because they were working, and lost jobs for reasons for which they were not to blame.  Many of them support specific issues for which the Republicans are known.  Yet if this does not pass, it will appear to the voting public that the Republicans blocked a measure that would have saved the unemployed from foreclosures, utility shut-offs, insurance payment defaults, food shortages, and other hardships, and driven many to the very welfare programs Republicans want to curtail.  It will undoubtedly mean that even some of the most principled of such voters will decide that they cannot afford their principles, that were the Democrats in control of the legislature there might be food on the table, hot water in the pipes, a car on the road, and a way to look for work.

Surveys to this point say that the Republicans are in a strong position for the midterm elections, that they will keep the House and have a good chance of winning the Senate.  Yet they have been losing voters because of the very issues that their base supports.  They cannot also afford to alienate voters who believe in much of what they represent but cannot afford even to look for work without that government check to keep them alive.  Republicans sometimes claim that the Democrats are trying to make all Americans dependent on a welfare system supported by the few wealthy individuals who are working, but failure to pass this particular bill is likely to increase that dependency, not reduce it.

Ultimately, if the Republicans do not take steps to help the unemployed now, some of them may find themselves in those ranks by the end of the year.

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Taxing the Sun

Olkahoma is considering a bill that would tax solar power; "green" energy advocates are upset about this, saying that it is a move by the petroleum industry to crush competition.  Yet is it?

Renewable energy products get many incentives in today's world.  Just to name one, New Jersey has a law forbidding local municipalities from increasing the assessed value of properties based on the value of newly-installed renewable energy systems such as solar and wind power.  Certainly such properties are worth more, and the possibility that one can buy an existing home whose assessed value for property tax purposes is artificially lower makes such properties more attractive, and encourages installation of such systems.  Meanwhile, these alternative energy companies are thriving, as prices of such systems fall and efficiency rises.

As a new industry, these programs needed some support to get started.  Eventually, though, they will become ubiquitous--if every home is equipped with solar power, the logic to promoting it will fail, and such incentives will have to end.  We no longer incentivize the construction of new rail lines, because we do not need more lines--in fact, we are struggling to support a failing rail industry precisely because it was built on incentives.  Incentives must end, or they become, like farm subsidies, our tax money paying us to do what is not otherwise economically beneficial.

Oklahoma, though, is not yet there.  They are addressing a different problem, one they attempted to address last year through their utility regulatory board (Arizona Corporation Commission).  That law charged a small fee per kilowatt of production (seventy cents; observers expected it to be about a hundred times that).  This new law is different, though, and in some ways better because it more directly addresses the problem that the fee did not address adequately.

If you have power generators on your property, you use the electricity from them to power devices on your property.  If you are not generating enough for your needs, you draw power from "the grid", the regular power lines maintained by the electric companies out of the money you pay to buy that electricity.  Then, when you are generating more electricity than you are using, you feed that power back to the grid and are paid for your contribution at the same rate that you pay when you are buying it.  That usually means that you experience a reduction on your electric bill, because nearly everyone uses more electricity than we generate on our own properties.  Yet in theory you could install enough alternative energy equipment that in any given month you were producing more than you were consuming, and instead of an electric bill you would receive payment for the power you sold to the grid.

Those who sell energy to the grid are already receiving that money.  They are receiving it in cost reductions on their energy bill not because they are using less electricity but because they are selling a product to the world.  No one objects to those who invest in alternative energy receiving income for their efforts; the objection is that they would receive tax free income for those investments.  After all, at what point does your small energy production facility become a power company?  Should farmers be able to install massive arrays of solar panels and wind turbines so as to make more money on electrical production than on farming, and still be treated as consumers who pay no tax on the power they sell to the rest of us because they are farms, not utility companies?  At some point equity requires that those who sell electricity be taxed equally, whether it is their sole business or a side interest, whether they do so from traditional or innovative methods.

Besides, the inequity this addresses, the one addressed by the fee it hopefully replaces, is the maintenance of the grid.  The price of electricity charged by utility companies includes the cost of delivering that electricity to consumers, including the wires that bring it to the homes of those who also generate their own power.  That same system is used by those who sell power to the grid, who do not pay those costs.  That gives them an unfair competitive advantage in the market, and unduly burdens power companies who then must raise prices to cover the costs--as if you could go into business as a package delivery company and make Fedex carry your packages free on their trucks and planes.  Those who profit from the sale of electricity to the rest of us, even if that profit appears only as a credit on their own electric bills, should pay tax on what they earn.

The bill makes good economic sense.

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Taxing the Drillers

In Pennsylvania, gubernatorial candidate Rob McCord is talking about taxing natural gas drilling, technically "fracking".  He says the state is missing the opportunity to capture millions of dollars being pulled out of the ground, and he wants ten percent of that to go to the state.

Let's be clear, though.  Drillers are not pulling money out of the ground; they are pulling methane and other valuable gases out of the ground and selling them, ultimately to consumers, people who buy natural gas, propane, butane, and other products.  It costs the drillers money to get that gas--fracking exists today precisely because energy prices are high enough to make the expensive process worthwhile.  They have to pay for the equipment, and for maintaining the equipment; they have to pay for the safeguards and systems involved in protecting the environment from contamination; they have to pay worker salaries.  When they have paid all this, they hope to show a profit--which does not mean that the company grows richer, but that the company has money to invest in trying to find more fuel and those who have invested in the company receive dividends.  Those investors include some wealthy people, certainly, but also include the pension plans and savings accounts and investment portfolios of ordinary working class people.  The price at which they sell the gas is dependent on what it costs for them to bring it to the consumer.

McCord wants you to believe that a ten percent tax on the gas drawn from the ground is a tax on a corporation; it is not.  It is a tax on the consumer.  If we suppose that the company can bring that fuel to the next step at one dollar per unit (a convenient number for our purpose), then McCord thinks ten cents should go to Pennsylvania, leaving ninety cents for the company; but the company can't produce the gas for ninety cents, it needs a dollar.  So in order to deliver the gas and pay the tax it has to raise the price so that the ten percent tax is covered on top of the other costs.  Of course, if they raise it to a dollar ten, suddenly McCord wants eleven cents, so they need another penny, and McCord wants another tenth--well, the math works out that the dollar it cost increases to a dollar eleven and one ninth cents; but the point is that this expense is passed through to the end consumer, the people who buy the gas.  It does not necessarily mean that the retail prices will rise; it could mean that that ten percent tax makes fracking in Pennsylvania too expensive to compete with other sources--the same Marcellus Shale formation stretches under New York, West Virginia, Ohio, Maryland, and Kentucky, although Pennsylvania has the largest area.  That would mean that supplies are more restricted and prices remain high, and that fracking will wait until the retail price has reached high enough to make it economically feasible to get gas from Pennsylvania.

Of course, there is one part of McCord's plan that makes sense.  He has managed to create the smokescreen that suggests he is not taxing the citizens of Pennsylvania who use natural gas and propane, but the real advantage of his plan is that he is also taxing all those investments, all those pension plans and savings accounts whose growth is dependent on the dividends from the energy stocks.  More than that, he has found a way to tax people who do not live in Pennsylvania--wherever that gas is sold, as methane, propane, butane, ethane, or helium, or electricity generated from it, the price will include a little bit that pays Pennsylvania.  So whether you buy gas in New Jersey or Colorado or Alaska, the price will reflect the fact that Pennsylvania is collecting tax on its local drillers, whose product becomes part of the national energy supply.

In short, McCord has found a way for Pennsylvania to tax energy sold in the rest of the country.  Normally that would be banned by the Commerce Clause of the Constitution, but by couching it as a tax on gas produced within the state he avoids that.

I'm sure this is not the only state tax on fuel production; but then, already more of the pump price of gasoline is paid as tax to the government than is profit to the producers.  Energy producers have a vested interest in keeping their profit margins slim, because they are already in competition in an international multi-source market.  Governments are not in competition with anyone, and they don't care how much they increase the consumer price of products as long as the increase is tax money going into government budgets.  I'm sure that more states will follow suit, as they figure out how to tax gas production in their own jurisdictions.

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