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McCain
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Obama
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Taxation of Households
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| Income Tax Rates |
Permanently extend lower tax rates (wages, dividends and capital gains).
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Rollback lower wage tax rates for those with incomes above $250,000
Raise tax on dividends and capital gains from 15% to 28%
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| Alternative Minimum Tax |
Permanent repeal
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Reform
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| Families and Children |
Raise dependent exemption from $3,500 to $7,000
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“Making Work Pay” tax credit ($1,000 for families/$500 for individuals) to offset payroll taxes (refundable)
Expand and enhance Child and Dependent Care Tax Credit by making it refundable and increasing the credit rate to 50%
Expand the EITC
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| Housing |
No specific tax proposal
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A new 10% Universal Home Mortgage Credit for taxpayers who do not itemize (refundable)
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| Savings |
No specific tax proposal
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Expand Low Income Savers Credit—50% match for first $1,000 saved for families with up to $75,000 in income (refundable)
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| Job training and education |
Tax-free training accounts for education and also health care
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New American Opportunity Tax Credit — credit for the first $4,000 of college education expenses (refundable)
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| Overall Reform |
Allow taxpayers to pay tax under a simple alternative tax with two tax rates, broad tax base, and a large standard deduction
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Simplify tax filings so that most Americans can fill our their returns quickly—moves towards a return-free tax system for many taxpayers
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Estate Taxation
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| Estate Tax |
Reform with $10 million exemption and 15% rate
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Not specified
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Taxation of Businesses
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| Corporate tax rate |
Lower top corporate tax rate from 35% to 25%
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No change
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| Investment |
Full expensing for investment in equipment
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Eliminate capital gains taxes for start-up businesses
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| Small business expensing |
Permanently extend expansion of Sec. 179 expensing
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No change
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| Research and Development (R&D) |
Permanent tax credit equal to 10 percent of wages spent on R&D
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Permanently extend the R&D tax credit
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| Energy Taxes |
Holiday for federal excise tax on gasoline (18.4 cents) and diesel (24.4 cents) from Memorial Day to Labor Day
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Extend production tax credit to renewables
Windfall Profits Tax on oil selling above a threshold
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“Windfall Profits Tax on oil selling above a threshold”
Is he kidding? That is like saying to the American people, “You get to pay even MORE for gas.” Or, we could have shortages as a result of a policy like that. Do I need to get a pen and draw Obama a supply and demand graph?
If anyone is interested, go compare the profit margins of Microsoft and Exxon-Mobil. Yeah...
The fact that a company is in a large industry should not mean that it pays a greater percentage of its profits to the government.
I’m no fan of the idea of a windfall profits tax on gas companies, but maybe you could draw me a supply and demand graph and explain how ExxonMobil making, for example, $36 billion in profits instead of $40 billion in profits is going to affect either supply or demand. Are you suggesting that they would supply less gas because they are only making $0.08 per $1 instead of $0.10? I think ExxonMobil would supply as much as they can produce in either situation.
Their profit margin has more than double in the last 10 years - so something is going on. If that’s normal economics or some type of market manipulation - I don’t know. (Although the fact that 10 years ago they were just Exxon - and ConocoPhillips was just Conoco, and Amoco wasn’t part of BP, and Texaco was part of Chevron - might be a clue.)
Here’s what surprises me about the oil companies. In a normal industry, if the cost of inputs rises, profits to the company will decline.
That is, the company will need to rise its prices (to account for the rise in the price of the inputs), that will lead to lower sales (as prices go up, demand goes down), so — if the per-unit profit margin remains the same — the companies profits will decline.
But, in the case of the oil companies, their profits are going UP despite the fact that the cost of their inputs (i.e. oil) has doubled over the last year.
Something does not make sense. If they were merely passing the higher cost of oil to the consumer, their profits would DECLINE. For them to be making record profits, they must be padding the price somehow.
I’m not an economist, so maybe I’m missing something, but something seems fishy here.
Fred,
If input costs rise while the price stays constant, profit goes down. The supply curve is based on what manufacturers are willing to supply. Their willingness to supply is directly related to profit. The supply curve does not graph actual supply (although it does move based on surpluses or shortages). It graphs the number of units that will be produced based on a given price. The oil companys will most likely raise prices to attempt to get the same profit. If the price got too high and consumers cut consumption (lowered demand), then oil companies will lower the price to get rid of extra supply. If the price is too low, they’ll limit how much they produce until they reach their desired profit level. They’ll repeat this process until equilibrium is reached.
That’s not to say they won’t accept an 8% profit over a 10% profit, but based on the fact that Hayden says their profit margin is going up, it doesn’t seem like they’ll need to accept an 8% margin.
Hayden,
“In a normal industry, if the cost of inputs rises, profits to the company will decline.” This is only true in a vacuum. Profits react to many things. If something that drives prices up, e.g. demand outpacing supply, outpaces another factor driving prices down, then the price will go up. My example, oil. Are they colluding? No. They don’t need to meet secretly in a back room to determine prices. They can see eachothers prices. What would their collusion be?
The FairTax is today’s featured article on Wikipedia! As many of you know, Morph is the primary editor of the Wikipedia article on the FairTax.
Even though I disagree with the guy, being the left-wing zealot I am, he’s done a great (and thankless) job over the years on the Wikipedia article so I’m glad he’s finally gotten a little recognition for those efforts.
And yet — even with oil and gas prices going through the roof, record profits, and demand continuing to increase — ExxonMobil stated earlier this year that they were going to keep their production level through 2012. And none of the other oil companies (the ones that still exist) appear to be picking up the slack. Commodity markets aren’t suppose to work this way.
Again, I think ExxonMobil would supply the same amount whether they had a windfall profits tax or not.
Fred,
Supply can stay constant while prices rise. You must believe that a 90% windfall profits tax would affect prices. 45%? Is 20% a number that you think would negligible? It seems pretty big to me, but I wouldn’t necessarily bet my house on that fact.
Morph,
Congratulations!
TO HAYDEN’S POST #3:
“in a normal industry”.....that’s your problem, you are comparing a commodity with a relatively inelastic demand curve and a government imposed supply cap to a “normal” industry with highly elastic and free-market driven demand and supply curves.
regardless of costs of production, and the resultant market prices, the demand for petroleum products have not abated much (nationally or world wide) in the last several years.
add to that constantly up-trending demand curve a stagnant or declining supply curve (thanks to government regulations prohibiting exploration/drilling/refining) and the price of oil and other petroleum products is understandably going to increase.
anyone else find it odd that many of the people who think a windfall profits tax on oil producers will not increase the price of gas are the same people who think the FairTax will cause a net 30% increase in prices (when indexed against post FT income levels)?
justin
Thanks, but it feels more like a curse. If you can imagine trying to get a 100 people to agree to the phrasing of every sentence in controversial topic article. Then several months later, 20 new people drop in and want to rewrite it again. Over and over and over... It’s like a bad dream I can’t escape. You get extremists on both sides, few people know the policies and standards. Things are constantly being vandalized. I’m trying to keep track of 1000 tax and economics articles and slowly improve them (and add new articles) when not dealing with everything else. It’s some sort of insanity. I should be on medication and restricted from computer use for my own physical health and mental well-being.
Morph –
It’s a case of “No good deed goes unpunished!” or “A labor of love becomes a noose around your neck!” Whatever.
I guess I can understand the Wikipedia model in utopia, but not in the real world where anyone (like me) can edit anonymously. Also, the idea of volunteer editors who don’t have time or resources to check out and verify every statement and citation, particularly when it comes to controversial or speculative articles, seems pretty screwy. But I know more and more people are turning to wikipedia to do quick (and, sometimes, extensive) research. I do so myself — though, alas, not for the FairTax.
In response to Hayden’s ’surprise’ about oil companies...
The reason the oil companies are doing OK even though their prices are going up is because global demand, particularly from China and India is way up(who BTW, subsidize their gasoline with tax money, making gas prices artificially more palatable in their countries).
China in particular, has been on a slow, measured trek towards a capitalist economy, enacting slow reforms that have created real opportunity for people during the past 8 years, the result of which is a migrant-worker class working in cities and sending money back home to villages in the country.
So while in the USA, demand for gasoline has remained flat and even had a slight decline as Americans struggle to conserve gas and move toward fuel-economy cars, the oil companies of the world have still seen a global increase in demand.
In the past, there used to be a significant ‘buffer zone’ between global production and global demand. During the 90’s, there might be a million or so barrels of oil monthly surplus kept ahead of the curve. Today, there’s scant dozens of thousands. Any increase in demand is difficult to supply at this stage, and there’s a variety of reasons for this.
Certainly in America, we have artificial limits on the supply of oil. Opportunities for oil exploration are limited by government, and refinery expansion is effectively halted at the moment. In OPEC countries, they have historically overproduced and saw little profit in the past for increasing supply; therefore it’s my opinion here that they simply feel as though they have little incentive to lower prices by increasing supply as they feel it is unlikely they’d sell the additional barrels long-term. Indeed, as countries around the world make new oil finds in Brazil and elsewhere, and as alternative fuels are making their first tentative steps in the markets, they simply may feel that other countries will find new the new profits and they see prices coming down without their help in the near future. If so, they have little interest in taking lower profit per barrel by oversupplying now.
In any event, fundamental supply and demand considerations are what’s fueling our present oil shocks.
Linkies to relevant info:
http://seekingalpha.com/article/81979-oil-s-supply-and-demand
http://www.eia.doe.gov/bookshelf/brochures/gasolinepricesprimer/
http://www.cbsnews.com/stories/2008/04/14/world/main4013564.shtml
It’s China and India increasing their oil usage per year by amounts that are higher than we are conserving in the rest of the world collectively that is causing oil supplies to be so tight.
Add to that that OPEC doesn’t want to increase supplies apparently (maybe they foresee alternative fuels disrupting their business, or Brazil getting in on things), and here in America, we are limiting oil drilling and refining to current levels as well, and the supply has remained pretty much flat for the last 3 years.
This is why Exxon Mobil can still have large profits... their sales volume is up globally even if it is down domestically.
Relevant links:
http://seekingalpha.com/article/81979-oil-s-supply-and-demand
http://www.eia.doe.gov/bookshelf/brochures/gasolinepricesprimer/
http://www.cbsnews.com/stories/2008/04/14/world/main4013564.shtml
Biggest winner in the gas-price-hike is governments — they love it and are raking in oceans of money while the real folks struggle to pay for driving back and forth to work and put food on the table.
They can’t eat if they don’t go to work, and buses and trains are NOT the most efficient delivery options, and the folks who think that “light rail” is going to get people off the roads whould wake up and get real.
We’re being raped at the gas pump because there isn’t enough refinery capacity in the US, because the government on behalf of environmentalists refuse to allow drilling, and because the Federal Reserve Bank (NOT part of the US government AND illegal under our Constitution — you can look it up) is printing funny money with no value, a result of a bunch of people who have single-handedly put the world economies at risk and are getting away with it rather than being arrested, tried, convicted, and sent to prison.
But returning to the point, why do governments profit from the purchase of goods that real folks cannot live without? These goods are purchased with money that already has been taxed before real folks get it. Why are they taxed again when they spend it?
There is no way this can be justified in a so-called free country.
hazeleyes, you do realize that gasoline excise taxes are per gallon, don’t you? It doesn’t matter what that gallon costs the consumer, the government gets the same.
“you do realize that gasoline excise taxes are per gallon”. Fred, this doesn’t change hazeleyes comment that “they love it and are raking in oceans of money”. The oceans of money come from the corporate income tax paid on the record profits.
I’m not too informed on the numbers regarding gas but my thought around it was that oil companies were making about 8% profit on a gallon of gas, while our government made about 20% per gallon. I think that was just in excise. So whatever profits the oil companies make, I had assumed our government was making about double that. But.. I could be completely incorrect and uninformed here.
Morphh,
If by “our government” you mean the federal government, the current excise tax on a gallon of gas is around $.18, or 4.5%, far from your 20% estimate? Now, if you want to add in State and Local gasoline taxes, (if any), I think you could get the total government tax up over 20% of the price at the pump.
Since all federal excise taxes, including taxes on cigarettes, alcohol, and gasoline, plus customs duties on all imported goods collected only 4.5% of federal revenues in 2005, it’s hard for me to go along with the idea that “they love it and are raking in oceans of money”? How big is an ocean?
More generally, if the current cost of a barrel of oil is $140, and there are 44 gallons in a barrel, then just the raw product must cost the oil companies $3.18 per gallon? It’s hard for me to understand how the remaining $.82 can pay for refining, delivery, and those obscene profits everyone is fired up about? Boortz has waxed eloquent about the difference between profits and profit margins. What are we talking about here?
Gasoline is taxed at a flat rate per gallon, not a percentage. Federal excise taxes on gasoline are (I think) about 18 cents per gallon right now, with many states tacking on an additional 5-10 cents per gallon. Some large municipalities charge yet another 2-5 cents per gallon.
But that being said, the average profit per gallon of gas for the retailers of gasoline is about 8-11 cents per gallon, so apparently they aren’t price gouging. And the Feds make out much better than the gas retailers, sure. And they get to tax the profits as well.
However, the amount of taxation relative to the actual cost of gasoline renders it kind of a weak suspect if you want to look for ‘who’ is causing high gas prices. Even if we did not tax gasoline or oil companies AT ALL, current gas prices might come down 20-30 cents a gallon and that’s it. This is why ‘gas tax holidays’ and such are likely not very useful relief at the pump. Personally, I’ll take what I can get, but it’s not a long-term solution.
Any significant increase in oil supply anywhere in the world would be good, increasing interest rates and shoring up the dollar would be good too.
Andrew, people paying more for gas means they aren’t buying other stuff. The revenue the gas companies are making is revenue other companies aren’t. If the government is making more from the gas companies, they are making less from everyone else. In fact, looking at the latest Treasury statement, fiscal YTD corporate income tax revenues are down $43 billion (~16%) from last year at this time. So it doesn’t appear they are “raking in oceans of money” at all.
Re Wikipedia –
It looks like Laurence Kotlikoff has been editing the Wikipedia article on the FairTax a bit. (Either that, or someone is using an alias very close to his name.) Anyway, I think his edits, as minor as they’ve been, have been a credit to Morph’s hard work and an improvement to the quality and tone of the cite. If it is him, it’s good to know that an economist who’s actually familiar with the FairTax is vetting the Wikipedia article.
Fred,
Good point.
In response to Fred Johnson and his questions about increased profits regarding oil. It works like this. If you set a cap and tell people that if you make over that cap you are basically working for free becasue all of it will go to the government. You will work up to that cap and stop becuase it is just wasted money. This is the problem with Universial Health Care. If a doctor can only make a set amount a year they are only going to work to that amount to make that amount of money and stop. Because why would you waste your free time working if you are not getting paid for it.
Here is what would happen with the wind fall profits tax. Oil companies would sell the amount of oil that would take them up to the limit where they are just under the excess tax level. They would then not sell any more in the US. They would then take the excess that they would normally sell in the United States and sell it in other areas of the world. For example China and India need more oil then they can get their hands on. So this money would not be taxed because it is not sold in the US and is not part of their US income (It would probably be sold through another company who is not based in the United States).
The reason the profits have went through the roof is because China and India have had growth that no one could have expected since 2000. If you have 1 million new cars on the road and 10 thousand new factories every month you are going to use a lot more oil then you did the previous month.
In summary you are not going to get a person or company to do anything because they feel they owe it to a country. A company is in business to supply a product at the higest profit they can get for it and with this profit they employ people who make money from creating the product. If you put road blocks in front of a company they are just going to find a place (i.e. another country) that does not have the road blocks. Looks like the government is going to join the labor unions in learning this point.
The thing to remember is the United States is not the only game in town. Soon at the rate the world is changing companies will not even need the US consumer becasue there will be 2 billion people in China and India with the income to purchase the companies products. America needs to wake up and drop the heavy handed attitude before it pushes the entire US economy over the edge.