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Montana Viewpoint
PAYING TOO MUCH FOR GAS?

September 19, 2005

What with the high fuel prices recently there’s been some loose talk about cutting the federal and state fuel taxes which would ostensibly make motor fuel more affordable for car and truck owners.

Have I got news for you! We’ve been cutting taxes on petroleum products for years, just not at the gas nozzle end.

For instance, the 2005 Energy Bill championed by President Bush gives $1.6 billion in preferential tax treatment to oil and gas producers, which is a fair return on the estimated $367 million they spent lobbying Congress on the Energy Bill. (Bloomberg.com, July 29, 2005)

Weigh that in light of Exxon Mobil reporting record earnings of $7.64 billion in the last quarter, and stating that their last three quarters have been the most lucrative in the company’s history.

While I do believe that from time to time the small petroleum producers’ situation might warrant some special tax consideration, the big players are quite capable of making money without government handouts.

In Montana, it’s a rare legislative session that doesn’t see the oil and gas industry coming in for a tax break. I don’t think they’ve ever been turned down, either.

In 1999, for instance, with oil hovering around 20 bucks a barrel the Legislature passed a New Production Tax Holiday from taxes on oil at the wellhead.

While the standard rate for oil and gas production is 15.06%, the New Production Tax Holiday lowered the rate to 0.76% for the first 12 months of production for vertically drilled wells and 18 months for horizontally drilled wells. It is not a coincidence that the majority of the product can be removed from the well in those first few months.

At $20 oil, perhaps this program had some merit, but I felt that at $60 we were foregoing tax revenue on a superfluous program while public services like mental health and schools were going begging.

So, in the last legislative session I introduced a bill that would have ended all special tax treatment for oil producers. At that time the amount of money these incentives cost was about $37 million a year for the state’s share and $35 million for the oil and gas counties’ share.

While you and I get to make up the lost $37 million of the state share in higher taxes or lower public services, there are also real hardships for the oil and gas counties. Sure, the oil boom is bringing in new jobs and tax dollars, but it’s also creating a serious strain on county resources that the new tax money just doesn’t cover.

For instance, there are miles and miles of formerly little used or maintained county roads that are now heavily used by the oil companies and require extensive maintenance. Then, too, the folks who work in the oil fields are a frisky and playful bunch, and their exuberance puts an added strain on an already tight law and order budget.

Well, the oil folks didn’t like my idea much, and flew some people up from Tulsa in the company jets to oppose it. They succeeded, too. They always do.

Here’s how the oil tax cut game is played at the state level. The oil crowd comes before the Montana Legislature and says, “Oil taxes are lower in North Dakota, and if you don’t cut them in Montana, we’re taking our rigs and marbles to North Dakota, it’s a simple matter of economics.”

What they do not say is that they are also telling the North Dakota Legislature that North Dakota oil taxes need to be lowered to be competitive with Montana. It’s a deception, but it’s not really a lie.

Heck, I don’t mind being lied to, in fact I expect it; but I hate like the dickens to be played for a fool.

Wyoming does not play this game and ended their three year experiment with new production tax incentives in 2001.

So, you see, the oil companies are very good at looking out for themselves, and why on earth should they object to cutting taxes at the gas pump, as long as long as their interests are protected and the demon of price controls does not raise its head as in 1973 when Nixon imposed them during the Arab oil embargo?

If you can’t afford gasoline, my friend, it’s not because of the gas tax.

Jim Elliott
Phone: 406-444-1556
Mail: State Senate Helena, MT 59620

jim@jimelliott.org