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Plethora of problems at the pump; solutions harder to find

Published: Monday, Aug. 31 2015 2:59 a.m. MDT

With gas prices averaging $3.98 per gallon — but reaching as high as $6.03 in Hawaii — Americans are turning to political leaders for solutions to the rising costs at the pump. Solutions, however, may not be easy to come by.

Since President Barack Obama took office in January 2009, The Heritage Foundation reports the price of gasoline has spiked more than 67 percent. In an effort to tackle this rise, the president used his weekly address on April 30 to call for an end to subsidizing the oil and gas industries.

"That's $4 billion of your money going to these companies when they're making record profits and you're paying near record prices at the pump. It has to stop," Obama said in a campaign speech in California.

In Congress, Republicans and Democrats have taken two different angles in addressing the rising price of gasoline. Following the president’s lead, Democrats are targeting subsidies for oil companies, while Republicans are pushing for more drilling. Thursday, House Democrats tried to force a vote to repeal oil company subsidies using a procedural move, but Republicans rejected the effort.

The Washington Examiner reports Democratic proposals would repeal a domestic manufacturing tax credit, which is available to all manufacturing firms, but only for the five largest oil companies. Supporters estimate this would produce $12 billion in revenue over the next decade.

The plan to end subsidies for oil companies is drawing criticism from many who say the so-called “subsidy” for oil and gas companies is not a subsidy at all.

Reporter Christopher Taylor explains the difference between a tax break and a pure subsidy, saying that Democrats are calling tax breaks “subsidies” as a way to point the finger of blame for high gas prices.

“Money businesses earn is their money and taxes are a small portion they send to the government,” Taylor writes. “Calling tax breaks a ‘subsidy’ reverses that fact, turning earnings into something the government owns, while taxes become the government allowing the company to keep some of their earnings.”

Although Senate Majority Leader Harry Reid promised to push for a vote in the Senate, Sen. Mary Landrieu, D-La., told CBS News she didn’t think the proposal would pass.

“I think we’ll have a very difficult time getting anywhere close to 60 votes,” Landrieu said. “To single out oil and gas companies just to score some political points is not something I’m supportive of.”

While some may criticize the Republicans for "favoring" oil companies by opposing the tax change, a spokesman for Rep. Paul Ryan, R-Wis., told Reuters that the Republican’s budget resolution, which passed the House on April 15, should close tax loopholes and scale back or eliminate deductions for all businesses, including oil companies.

Even if the Democrat proposals gain steam, some sources — including a Feb. 3 Committee on Natural Resources Democratic Staff Report — report that it wouldn't have any impact on prices at the pump.

Jack Gerard, president and chief executive of the American Petroleum Institute, told CNN that raising taxes on the oil and gas companies is a “red herring” being used to distract attention from the “ineffective energy policies” of the Obama administration.

In an API report, the institute states that U.S. oil and natural gas companies paid income taxes at a rate that was 70 percent higher than the effective rate of the S&P Industrial companies and provides almost $100 million every single day to the federal treasury.

“Our government doesn’t support our industry,” Gerard told NewsOK on Thursday. “Our industry supports our government.”

Charles Ebinger, the director of the Energy Security Initiative at the Brookings Institution, said ending the tax break wouldn’t be the end of the world, but that it would have “a negative impact on the economy overall.”

In his April 30 address, Obama also announced that Attorney General Eric Holder would launch a task force to look for fraud or manipulations of oil markets by traders and speculators. However, a Risk.net article states that many who work on the market are unfazed by the possibility of investigation.

“They always come to the same conclusion," said Philip Verleger, an economist and professor of management at the University of Calgary’s Haskayne School of Business. "That there was no manipulation.”

In the same article, Walter Zimmerman, senior technical analyst at United-Icap, says the price of crude oil is rising because of the weakening dollar.

“Crude oil is priced in dollars and if the currency is losing purchasing power, anything you’re trying to buy become more expensive, automatically and instantaneously,” he said

According to CNN, a spike in oil prices preceded 10 of the 11 U.S. recessions since World War II. With Americans already spending nearly $400 a month on gasoline, many are beginning to cut back, which has a ripple effect across the economy.Bloomberg reports that higher prices have already sliced two-thirds of a percentage point from this year’s growth.

“When the national average price of gasoline exceeds $3.20 a gallon, that’s when we start to see indications of behavior change,” Michael McNamara, vice president for research and analysis at SpendingPulse, told The New York Times. “People pump fewer gallons and drive less, and that tends to have an impact on retail because people cut back on Saturday driving.”

Some, including oil trader Dan Dicker, blame speculators for the rise in prices, saying they bet on poorly understood oil exchange-traded funds and therefore raise the price of gas.

“There is no supply issue going on here,” Dicker told AOL’s Daily Finance. “A whole bunch of people are pouring money into an oil market trying to take advantage of what they perceive to be a real risk in supply.”

Uncontrollable circumstances such as the weather are also having an effect on oil prices. Recent tornadoes in the South closed seven refineries, and at CNBC, Richard Hastings, strategist at Global Hunter Securities, warns that a weak dollar combined with summer hurricanes could raise prices up to $6 per gallon.

All of these factors, plus unrest in the Middle East, may be impacting oil prices. However, Wall Street Journal columnist Kim Strassel writes that many of these arguments are being used as convenient bogeymen to distract from the Obama administration’s de facto drilling moratorium in the Gulf.

Republicans on Capitol Hill have likewise targeted the drilling moratorium, which was put in place after the Gulf oil spill, as one of the major causes of rising oil prices.

The Heritage Foundation reports that while the moratorium has been lifted, permits are being issued at a 78 percent monthly reduction from the historical monthly average. On Thursday, Hornbeck Offshore Services, Pride International Inc. and Transocean Ltd., posted negative first-quarter profits as a result of the drilling moratorium.

Thursday, Republicans in the House passed the Restarting American Offshore Leasing Now Act, which is designed to speed up offshore oil and gas drilling. While some, including David Goldston at the Natural Resources Defense Council Staff Blog, believe additional drilling will have no impact on gasoline prices, statistics show that after President George W. Bush lifted the drilling moratorium on the Outer Continental Shelf in 2008, oil prices dropped from $145 per barrel to below $100 per barrel within two months.

Putting America’s resources on the table “popped the oil bubble,” writes Will Collier, which caused prices to drop. By Election Day in 2008, the price was at $70 per barrel.

With Obama currently enjoying a popularity boost after the death of Osama bin Laden, The Hill warns it may not be long before high gas prices eat away at the “bin Laden bounce," dropping his approval ratings just as they did for Bush when gas prices rose in 2008.

“You can talk all you want about Republicans and oil companies and OPEC, but consistent in American history, the price of gas lands on the president’s desk as a blame issue,” Jeremy Mayer, an associate professor at George Mason University, told Politico. “It’ll be an albatross around his neck if it’s $5 by the election.”

Online:

Baker Hughes Rotary Rig counter

Gasoline Tax Rates by State

GasBuddy.com

U.S. Energy Information Administration energy-specific subsidies

Department of Energy Strategic Petroleum Reserve

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