RUSH: I’ve got this story here: “GOP Warms to ‘Tax’ on Oil — The Bush administration clashed with Senate Republicans yesterday over proposals to use oil company profits to beef up heating assistance for low income households this winter. Energy Secretary Sam Bodman said the administration opposes a proposal by Charles Grassley, the Senate finance committee chairman, urging oil and gas companies to devote a portion of their nearly $100 billion profits in the last quarter to families who need the money to pay heating bills. Bodman says, ‘No, sir. I wouldn’t support it. It’s similar to a tax.’ Bodman says the administration would proposal an alternative that is expanding offshore drilling and establishing emergency national reserves of gasoline and natural gas, the most prevalent heating fuel, to augment the Strategic Petroleum Reserve,” and then Drudge had a story up that people are getting very upset about oil company profits, which is common, people always do. But the thing that let me know that I had to talk about this and try to once again shed some light and truth on this whole thing… I went over to a friend’s house last night, and this guy is a responsible businessman; multiple businesses he has been in, investment banking and all this. We got to talking about the oil companies. He said, “You know, these profits these people are making, it’s really obscene.”
I thought, “Whoa! If it’s even getting to this guy, I gotta move fast, because this guy ought to know as well as anybody that there’s no such thing as a windfall profit or obscene profit.” There really isn’t, folks. They exist on paper. Here’s an example. Alan Reynolds, by the way, has a great piece a column on Town Hall. He gets into great detail about this, but let me give you an example using something that you might understand, something that you might be able to relate to. How many of you have been living in a house for quite a while, and let’s just — ballpark figures, not even trying to approach reality here, I’m just trying to make this understandable. Let’s say that 15 years ago you bought your house for a hundred thousand dollars. Today, you’ve kept it up, your house is in pretty good shape. It’s a nice neighborhood. Today you could sell that house for a million dollars. You think, “Wow, a windfall profit! You’re going to get a windfall profit of 900 grand on the sale of your house.” What if the government decided to tax that? What if they decided to tax windfall profits on your house? But here’s the problem: are you going to live in a sewer, you going to live in a hole after you sell your house? No. After you sell your house for your million bucks, you’ve gotta go buy something else.
Well, guess what? You’re not going to go buy a brand-new house for a hundred grand; it’s going to take a large part of that million that you just got because houses everywhere have escalated. There’s such a thing as inventory oil and old oil, and when you have the windfall profits tax — you know, I’ve done so much economics education on this program, and I’m surprised people don’t retain more of it. It’s just like baseline budgeting. I explained that once and everybody seemed to get it. Let’s talk about wage and price controls, shall we? Windfall profits tax is just a price control in its own bastardized way. So wage and price controls. Let’s go back to the 1970s: Richard Nixon, wage and price controls, okay? We had inflation of what? Inflation was 3%, 4%. People were panicking. Wage and price controls! Well, what happened was management said, “Ooh, goody!” and they told all of us employees, “The government says we must freeze your wages, and we can’t do anything about it, and for as long as that’s the case there will be no raises, and they smile as you walk out of the office,” and you say, “Okay, no big deal, because prices are frozen, too.” Until you went to the grocery store, and then you saw a bunch of things that were more expensive than the last time you went, and you said, “They’re violating the price control. How do they do that?” Very simple. Let’s use beef as an example. Let’s use the butcher counter as an example. In the average American supermarket butcher counter you have your fillet, you have your… well, I don’t know what. You have rib eye. You have flank. You have chop steak, all this. Okay, all of those specific cuts of beef the price controls were on.
All the butcher had to do was come up with a brand-new cut of beef that had not been categorized, call it “flank steak prime” or “chopped steak supreme,” and he could charge you whatever he wanted for it, and therefore the price control was meaningless — and any number of businesses found ways around it. Windfall profits tax? Okay, we’re going to put a windfall profits tax on the oil companies, (Doing impression) “Yeah, because those SOBs, they’re raping us, and they are taking the price up, and they know when we’re weak and they can take the price up.” If that’s the case, folks, if the oil companies are manipulating the price of gasoline, how come the price of oil was 12 bucks ten years ago? How come it was 15 bucks ten years ago, and how come the price of gasoline’s coming down now? If they can choose the gas price to be whatever they want, why the hell bring it down? “Well, because they’re responding to public pressure.” Why do they have to care about that? Why do they have to care about public pressure? Where else you going to go get it? You can’t get on a plane and go to Britain and buy it any cheaper.
“Rush, it’s just part of game, you know, to make us think that there’s market forces involved.”
No, no. If they’re greedy SOBs, folks, and all they do care about squeezing us just to death, then why ever lower the price? Once they got gas up to six bucks, why lower it?
“Well, because people go elsewhere and buy.”
Why? Where else could you go if they are controlling it?
“Well, the oil companies don’t control all gas stations, Rush, only their own.”
Okay, so what the oil companies would do, then, is raise their price because they can, and then the other stations they don’t know, what would they do? They would lower their prices, and guess what would happen? Everybody would go there, and pretty soon there would be a shortage, and prices would have to come back up, and the oil companies, “Welcome back, we didn’t cut our prices, we’re still here at five bucks a gallon, (laughing), Screw you!” There is this conspiracy theory around big oil that there is somebody around that sets the price of gasoline based on what they think they can get away with.
Now, the windfall profits tax. Let me just get into this because if we put this windfall profits tax on, it isn’t going to work. Here’s how the oil companies will get around it. We import most of our oil, right? The windfall profits tax will occur basically, as this is written, on only certain types of oil and transactions so all you gotta do to avoid it is get your crude from a different source where the windfall profits tax doesn’t apply, and that’s what will happen. All they got to do is drop their domestic consumption and refining of domestic oil, domestic crude by one and a half or 2% and replace it with oil that’s not subject to the windfall profits tax, and they beat it! It happens every time that this is tried. Have you ever known the oil companies to be put out of business despite every government politician’s effort to try?
We’ve really tried to punish these people, folks. I mean, we tell them where they can drill and where they can’t drill; we tell them what kind of ships they can put their oil on and what kind of ships they can’t. We give them the sea routes that they can travel. We tell them how many formulations of gasoline that they have to refine. We’ve made it really tough on these people to do business and yet they’re still there making obscene profits, obscene profits, oh, horrible obscene profits, and everybody thinks that this is because they can, that they’re immune to market forces and so forth, and I’ll just share here with you Alan Reynold’s column on this. He has a pretty interesting piece here. Now, even people who normally — this is what I don’t understand. I’m into my 18th year now. I’ve had bang-up programs the past two weeks, destroying all these attempted lies by the Democrats, and you put your faith and trust in me. Now all of a sudden I come along and tell you the truth about oil prices and gasoline prices, and you think I’m in somebody’s back pocket! You think I have already been compromised. Yesterday, there was nobody with more integrity than me. Today, I’m just a stooge for the oil company. Well, it doesn’t matter, folks. I gotta stick with what I always know to be the case.
RUSH: Bob in Port Jefferson, New York, welcome to the program, sir.
CALLER: Hey dittos, Rush.
RUSH: Thank you, sir.
CALLER: This is Bob over in Port Jefferson.
CALLER: I’m really upset about the stealth tax that Bush is coming up with.
RUSH: The what tax? The what tax?
CALLER: I think it’s a stealth tax.
RUSH: Stealth tax, you mean these new tax recommendations?
CALLER: Yeah. I’m in the business, I’m an insurance professional and a registered representative for the last 20 years, and I sit down with people from all walks of life and businesses, you name it, but anyway —
RUSH: What upsets you most about this?
CALLER: What upsets me most about this is they’re going to do away with the tax deductibility of my property taxes, number one. And I live on Long Island. This is, you know, tax me up the yin-yang USA to begin with, and they’re going to cut down the percentage that I can write off my mortgage. That’s going to kill a lot of people on Long Island and New York state. I mean, we’re taxed to the hilt. I was so upset I called the White House this morning and I got their — you know, their info line, so to speak, and I let them know what I feel, but who knows —
RUSH: Since everybody is into conspiracy theories today, I’ll say this. I think this plan is designed to affect people just like you so you’ll leave Long Island and leave New York and move to no-tax states and become Republicans.
CALLER: I am a Republican.
RUSH: Okay, then you leave New York where your vote doesn’t count; you go to Florida where it will count. It’s a Bush rope-a-dope.
CALLER: Yeah, food for thought. Now, I was suspicious because of the local news, you know —
RUSH: Let me be serious with this. If you don’t mind telling me, and I don’t know everything there is to know about this proposal but that’s all it is, I did read something about it last week and I alluded to this on the program that they were looking at eliminating or really cutting the deduction you get for your home mortgage interest and property taxes. Could you tell me what tax bracket you’re in?
CALLER: I’m over 28%.
RUSH: You’re over 28%. Okay, so you’re either at 33 or 36, one of the two. Now, the plan is for 80% of US taxpayers or 75% of US taxpayers to pay no more than a 15% tax rate on their earned income. Capital gains would be taxed even less, and that rate’s been going down recently, too. The tradeoff is that, okay, we gotta say good-bye to some deductions; we’re gonna lower everybody to 15%. We gotta say good-bye to some deductions, and one of the big deductions would be property tax. State and local tax might also go by the wayside and some of the mortgage interest deduction. Now, that doesn’t sound like a fair tradeoff to you?
CALLER: You know what, I mean once you get a program that’s on the books, it’s very hard for them to go back and say, “Oh, you know, we’re going to take this away, we’re going to give you that.” I’m very used to them just taking stuff away. Now we’re going to get rid of this just like we got a rid of the (unintelligible) program.
RUSH: This happened in 1986. We had tax reform 1986, which actually led to the S&L crisis because you had certain tax laws that people had ordered their lives around, both businesses and individuals. All of a sudden we got rid of the five tax brackets and basically got down to two: 28 and 15%. But for some people there was a bubble, and they ended up paying 31% on the last dollars they earned. In exchange for getting the rates down from 50 to 28%, it was bye-bye certain real estate deductions, and that’s what sent the S&Ls over the edge and people were saying, “How can you do this? I mean, we’ve ordered our lives according to the tax code and then, bam! One day it’s just over?” Well, you’ve been demanding tax simplification, and this is the conundrum or the dilemma, because everybody is demanding tax simplification, and so, okay, here we’re trying to do it again, responding to it again and come up with a 15% rate for 75, 80% of the people, and just pay 15% and then no deductions. I’m going to tell you something, folks, any time there has been a discussion of a flat tax, 15, 18%. The vast majority of these flat tax proposals have done the same thing. They have gotten rid of some of these deductions. When you start factoring in deductions is when you complicate the tax code, and the whole point has been to simplify it, and one of these things be careful what you ask for because you may get it.
One of the things that happened in the ’86 tax reform was credit card interest was no longer deductible. I remember, I will never forget, we had a call on this program from some poor woman in Chicago. I kept her on the phone for 45 minutes trying to explain to her that going out and spending a lot of money on their credit cards just to be able to deduct the interest was costing her money, costing her more money than if she didn’t spend money on the credit card. She was one of these people that thought she wanted to be like the big guys, and everybody thinks that there are more powerful, wealthy people playing all kinds of games with the tax code that you don’t get to play, and I’m here to tell you, folks, it ain’t the case, it is not the case. So one of the things that people do is they think, “Oh, I need deductions, man! I need write-offs!” Write-offs? They hear the big guys talking about “write-offs,” so they go out and use their credit cards and they would pay the minimum payment just to keep that interest that they were paying high so they could deduct it, because they equated deductions with screwing the government, deductions with lowering their taxes. But if you ever got around to looking at how much you were spending on that interest, and you weren’t being able to deduct all of it anyway, if you got a look at this you found out you were spending far more keeping your interest payments up so you could deduct them than if you didn’t spend a whole lot of money on the credit cards and just paid their taxes at a lesser rate.
It was just tough for people to understand. It’s sort of like it’s the same argument that I make when people plan their income taxes so they get a big refund every first of the year when they send in their tax form. I’ve known people all my life that they would get a refund of whatever, $1200, $1500, sometimes $4,000. I know single people who have had money withheld as though they were married with 20,000 kids, or whatever the max is, and then every April or whatever they’d get their huge refund in. “Ha-ha! Look at my check here, man? Did I screw the government or what?”
“You didn’t screw the government. The government’s screwing you! They kept all your money that you had earned; they’re not paying you any interest on it.”
“Yeah, but I got this big lump, man. I’ll never have four grand in my life! I’ll never have $1200 in my life, but I’ve got it now.”
“Well, if you just save it you would have it. If you’re letting the government take it away from you, you obviously don’t need it.”
“Oh, no, man. I do need it. I’m waiting for that big refund. That’s when I go out and buy my new washer and dryer, TV.”
Okay, fine. So you want to orient your life that way, that’s fine, but then at the same time people complain and moan.
“It’s just too complicated! We need to simplify the tax code; it’s outrageous.” So they come up with a simplification plan. Simplification plans always include eliminating some deductions, and people say, “Wait a minute! I need my home mortgage interest deduction. I need my property tax deduction. You can’t take them away.”
“Wait, we’re giving you 15% rate. It’s going to be real simple: just pay 15% and that’s it.”
“No, man, I need my deduction!”
So this is why this stuff never ends up happening — and I’ll tell you what my fear is. My fear is none of this stuff. My fear is that I don’t believe tax reform will ever be permanent. This sort of happened in the ’86 reform, and it’ll happen again unless there’s a total revamp of the system, totally throw this out and start anew with a new one — which is not going to happen. It ought to but it won’t. Once they lower the rate to 15%, and they do get rid of these deductions, what’s to stop them next year from saying, “You know what? The treasury is a little light this year. We need more tax revenue. We can’t raise the rates because the — well, yeah, we can because we’ve gotten rid of those deductions! We’ll just raise the rates. We’ll say we need to make that 15% 18%,” and then the rates start creeping back up just like Bill Clinton did. Slick Willie did it in ’93 when he took office. The 15 and 28% tax rate, guess what? became 39, 35, or whatever — and the deductions were gone. They didn’t put the deductions back in. So this stuff is a slippery slope, folks. It’s one of these things be careful of what you ask for, and it’s just like every other bill in Washington. Just because it’s law this year doesn’t mean it’s going to stay that way and that they can’t change it next year.