Oil Prices, Heating and Taxes I

Oil-company executives were called to give testimony before the Senate yesterday on the subject of high fuel prices and profits. Though the hearings themselves were largely grandstanding, they did bring attention to a number of energy policy options currently under consideration: should a “windfall-profits” tax be imposed on oil companies, what kinds of tax exemptions should be offered for money reinvested in development of alternative fuel sources, and how should proceeds from a windfall-profits tax be used.

Senator Jack Reed wants to spend the money from a windfall-profits tax on increased heating assistance to low income households. This certainly sounds like the compassionate thing to do and a political winner. But there is a problem. As the past year has more than amply demonstrated, the Federal government consistently mismanages large sums of money under its control – bike paths instead of dam repairs, federal building improvements over aids drugs, bridges to nowhere over hurricane relief, etc. A low-income heating assistance program would be no different.

First problem: Senator Reed claims that an additional $2,900,000,000 is needed to fully fund the low-income heating assistance program, yet was unwilling to propose redirecting $3,000,000,000 spent just last week on a government subsidy of digital-to-analog television converters towards something more worthwhile. The Democrats' slogan is don’t force people choose between heating or eating. Senator Reed had a choice between helping people heat or helping them watch TV, and he chose in favor of TV.

Second problem: Senator Reed’s state-by-state list of where heating assistance money will go is evidence of yet more irrational government spending.

In the proposed heating assistance budget, the top five states in terms of heating assistance-per-household are Louisiana (#1), Texas (#3), and Florida (#5). Those aren’t cold-weather states. The average amount budgeted per household in Lousiana is $1,547, while the average amount budgeted per household in West Virginia is $264. There are more cold days in WV than there are in LA, WV’s coldest days are colder than LA’s coldest days, and you can’t explain the funding differences by citing West Virginia’s affluence. The state with the second most households receiving assistance would be North Carolina, a warm weather state that has more than twice as many households slated to receive assistance than does the colder state of New Jersey. Almost as many households in Hawaii are budgeted for heating assistance as are households in Alaska (though at much less per household).

Until the Federal government introduces increased transparency and rationality into its spending, the public is right to be suspicious of “Tax big to spend big!” as an actual solution to any problem.