Oil Taxes and Prices

Placing an additional tax burden on domestic oil production would result in a decrease in oil production and an increase in the price of gasoline at the pump.  For these reasons, I voted against the finance package of the CLEAN Energy Act in Committee, and the finance package was not included as part of the CLEAN Energy Act.  Although the finance package of the bill would have expanded and reauthorized tax credits for alternative energy and fuel sources, it would have paid for the tax credits by taxing domestic oil production.  I support creating more efficient fuels and exploring and supporting alternate and renewable energy production, but not at the expense of risking our country’s current, stable source of fuel.  Taxes on domestic oil production would decrease oil exploration and production as well as act as a disincentive to new refinery construction efforts.  All of these actions would lead to the increased cost of oil and gas.

The price of oil should not be controlled by Congress, and attempts by Congress to control oil companies and prices should be examined closely.  The oil industry is a free market industry and responds to supply and demand forces.  Through April of this year, the amount of finished gasoline produced in the U.S. was the highest it has ever been, and industry capacity expansions have added the equivalent of 10 new refineries over the past decade.  The industry is expected to bring the equivalent of an additional eight new refineries into operation in the U.S. by 2011.  Matching this increased supply, however, is very high demand for gasoline throughout the world and an ever increasing demand from India and China.  Maintenance at European refineries, strikes, refinery problems in Nigeria and Venezuela, and in the U.S. as a result of Hurricane Katrina, and a host of other issues that cause fluctuations in the price of oil have added to the already tight supply of oil. 

Quite simply, gas prices are high because the world’s supply cannot keep up with the world’s demand.  Oil companies have made record profits because their product is in demand.  Rising prices are a regulator on the economy and the consumption of goods.  Prices convey information.  When prices rise, consumers know that the supply of certain products is limited.  In response, ultimately, consumer behavior will change.  If government interferes by placing restrictions on the price of gasoline, keeping it artificially low, consumer behavior does not change, resulting in an even greater shortage.  Consumers faced this scenario during the 1970s when Congress placed restrictions on the price of gasoline, resulting in oil shortages, rationing, and long lines at the pump.  You may be interested to know that the profit margin for oil companies remains on par or only slightly above other major industries such as drug companies or software manufacturers.  Oil companies typically experience a 5 percent profit margin, because of their investment in exploration, development, and expansion of refineries.  The price of oil should be a result of the free market economy and not through Congressional intervention in the marketplace.