Open federal land to energy exploration and development to boost economy

The United States has recently experienced a boom in oil and gas production, but that has occurred almost exclusively on private and state lands. Federal land has been largely closed due to the policies of several administrations.

The American Energy Alliance has a new report “Beyond the Congressional Budget Office” which shows the potential of a more enlightened federal policy in energy development. Here is the executive summary:

While headlines have reported a boom in US oil and gas production, that boom has been related almost exclusively to exploration and development on private and state lands and waters. Even that limited expansion has had profound effects. Opening up Federal resources — in addition to private and state resources — to exploration and development can accelerate all of those trends. But recent administrations have yet to follow through on promises to allow access to Federal resources, instead proposing to levy increased taxes on oil and gas production.

The Congressional Budget Office (CBO), at the request of the House Budget Committee, recentlyreleased an analysis of lease revenues that could be expected to arise from a proposal to open Federal lands and waters to oil and gas leasing (the “CBO Assessment”). Specifically, the proposal aims to open areas that are statutorily or as a matter of administration policy prohibited from leasing. The issue has repeatedly been a hot-button political and economic issue in the last several years, most recently at the beginning of the Obama administration and then again as Republican challengers in the 2012 election placed opening the lands and waters at the center of their energy policy.

But while the Administration cannot shy away from exploring the fiscal benefits of opening Federal lands, the CBO study was restricted to analyzing just one component of those benefits: lease revenues. This paper highlights the larger economic effects, including economic growth, wages, jobs, and both federal and state and local tax revenues, of opening Federal lands and waters to oil and gas leasing, relying solely upon the CBO natural resource and oil and gas price

estimates to show these broader economic effects in order to maintain direct comparability with their analysis. This paper also seeks to “complete” the CBO Assessment by taking measurements of output, jobs, wages and tax revenues into consideration.

The findings of this paper demonstrate that opening federal land that is currently closed-off because of statutory or administrative action would lead to broad-based economic stimulus, including increasing GDP, employment, and wages. Specifically:

GDP increase:

• $127 billion annually for the next seven years.

• $450 billion annually in the next thirty years.

• $14.4 trillion cumulative increase in economic activity over the next thirty-seven years.

These estimates include “spill-over” effects, or gains that extend from one location to another location. For example, increased oil production in the Gulf of Mexico might lead to more automobile purchases that would increase economic activity in Michigan. Spillover effects would add an estimated $69 billion annually in the next seven years and $250 billion over thirty years.

Jobs increase:

• 552,000 jobs annually over the next seven years.

• Almost 2 million jobs annually over the next thirty years.

Jobs gains would be felt in high-wage, high-skill employment like health care, education, professional fields, and the arts.

Wage increase:

• $32 billion increase in annual wages over the next seven years.

• $115 billion annually between seven and thirty years.

• $3.7 trillion cumulative increase over thirty-seven years.

Increase in tax revenue:

• $2.7 trillion increase in federal tax revenues over thirty-seven years.

• $1.1 trillion in state and local tax revenues over thirty-seven years.

• $24 billion annual federal tax revenue over the next seven years, $86 billion annually thereafter.

• $10.3 billion annual state and local tax revenue over the next seven years, $35.5 billion annually thereafter.

Read the full report here.

MasterResource also has a three-part series on this subject:

Part I: Expanding “Depletable” Resources

Part II: Coal Issues

Part III: Federal Land Potential

Tax the Rich by Lowering Tax Rates

Many in Congress are loathe to extend the “Bush” tax cuts especially for the rich. Those against extension claim that tax hikes are necessary to help decrease the deficit. They apparently are ignorant of both history and something called Hauser’s Law:

“Over the past six decades, tax revenues as a percentage of GDP (gross domestic product) have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90).”

This happens because “Under a tax increase, the denominator, GDP, will rise less than forecast, while the numerator, tax revenues, will advance less than anticipated. Therefore the quotient, the percentage of GDP collected in taxes, will remain the same. Nineteen percent of a larger GDP is preferable to 19% of a smaller GDP.” (WSJ)

History of tax rates versus government revenue is summarized by the Heritage Foundation:

The tax cuts of the 1920s:

Tax rates were slashed dramatically during the 1920s, dropping from over 70 percent to less than 25 percent. What happened? Personal income tax revenues increased substantially during the 1920s, despite the reduction in rates. Revenues rose from $719 million in 1921 to $1164 million in 1928, an increase of more than 61 percent.

The share of the tax burden paid by the rich rose dramatically as tax rates were reduced. The share of the tax burden borne by the rich (those making $50,000 and up in those days) climbed from 44.2 percent in 1921 to 78.4 percent in 1928.

The Kennedy tax cuts:

President Hoover dramatically increased tax rates in the 1930s and President Roosevelt compounded the damage by pushing marginal tax rates to more than 90 percent. Recognizing that high tax rates were hindering the economy, President Kennedy proposed across-the-board tax rate reductions that reduced the top tax rate from more than 90 percent down to 70 percent. What happened? Tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent (33 percent after adjusting for inflation)

Just as happened in the 1920s, the share of the income tax burden borne by the rich increased following the tax cuts. Tax collections from those making over $50,000 per year climbed by 57 percent between 1963 and 1966, while tax collections from those earning below $50,000 rose 11 percent. As a result, the rich saw their portion of the income tax burden climb from 11.6 percent to 15.1 percent.

The Reagan tax cuts:

Thanks to “bracket creep,” the inflation of the 1970s pushed millions of taxpayers into higher tax brackets even though their inflation-adjusted incomes were not rising. To help offset this tax increase and also to improve incentives to work, save, and invest, President Reagan proposed sweeping tax rate reductions during the 1980s. What happened? Total tax revenues climbed by 99.4 percent during the 1980s, and the results are even more impressive when looking at what happened to personal income tax revenues. Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

The share of income taxes paid by the top 10 percent of earners jumped significantly, climbing from 48.0 percent in 1981 to 57.2 percent in 1988. The top 1 percent saw their share of the income tax bill climb even more dramatically, from 17.6 percent in 1981 to 27.5 percent in 1988.

History shows that the best way to “tax the rich” is to lower the tax rates. This isn’t just some conspiracy between conservatives and the rich; the principle was well-known to our founding fathers. Of course there were no income taxes then, but there were taxes on goods.

In Federalist Paper #35 (modern English edition) we find this advice:

“…[if] the government needed more revenue it would increase taxes and try other experiments like adding penalties. For a while tax revenues would increase— until people found ways to elude the new taxes. Government officials would get the false impression that raising taxes also raises the amount of money going into the federal treasury. This false impression would take a long time to correct. Necessity, especially in politics, often occasions false hopes, false reasoning, and a system of measures correspondingly erroneous…

” Taxation policy requires extensive information and a thorough knowledge of political economic principles. Anyone who understands these principles will not want oppressive taxes nor will they want to sacrifice any group of citizens to get more tax revenue.

“The most productive system of obtaining governmental revenue will always be the least burdensome. In order to tax judiciously, the person with the power to tax should understand the general characteristics, habits, and thinking of the people, and the country’s resources. Let every thinking citizen judge for himself who has the required qualifications.”

H/t to Mary Webster, OregonLive,com.

Capitalism is not a zero sum game

In game theory, a zero sum game is one in which the gains of one are exactly balanced by the losses of another. In economics, a zero sum game is aptly described by the saying, “As the rich get richer, the poor get poorer.” Many assume that our “economic pie” is static, so that if some take more of the pie, there is less for others to share. But capitalism increases the size of the pie, and although some may get bigger pieces than others, all gain.

Wealth is not money. In the economic sense, wealth is created from natural resources to produce capital goods and services. The more goods available to a society, the wealthier that society is. Reasonably unfettered capitalism is the best engine to produce those goods. In a capitalist society, even the poor are better off than those in non-capitalist countries; just compare the U.S. with some African countries.

Many politicians, including the current crop, think the economy is a zero sum game. Hence they attempt to “redistribute the wealth” in the name of fairness. But this attempt to make things “fair” just decreases the size of the economic pie, to the detriment of all.

The federal government, and some state governments, are hindering creation of wealth through a myriad of regulations that make creation of capital goods, and hence wealth, much more difficult than it could or should be.

About 80% of the U.S. economy is now in the service sector. While many services are valuable and may help producers of wealth; services, themselves, are not intrinsically wealth producers. In our economy, about 71% of GDP is made up of consumer spending which is highly sensitive to job creation, personal wealth, and after tax income. As the real wealth creators, the manufacturing and energy sectors decline, the service sector will feed on itself and eventually our economy will become a zero sum game.

The best way out of our economic mess is to unfetter and unleash the capitalists so that our “economic pie” becomes bigger. Government is currently a large part of the problem. It should just get out of the way.

Obama Warmed Over

The greatest danger we face from global warming is that politicians think they can do something about it.

On December 6, negotiations will begin in Copenhagen for a new agreement to replace the 1997 Kyoto Protocol. The hope is these talks will produce commitments from each nation that, collectively, would keep temperatures from rising 2 degrees Celsius (or 3.6 degrees Fahrenheit) above pre-industrial levels. That will require deep cuts in emissions, as much as 80 percent among industrialized nations, by mid-century.

In his Sep. 22 speech to the UN’s Global Warming Summit, President Obama said:

“That so many of us are here today is a recognition that the threat from climate change is serious, it is urgent, and it is growing. Our generation’s response to this challenge will be judged by history, for if we fail to meet it – boldly, swiftly, and together – we risk consigning future generations to an irreversible catastrophe.”

Reality check: Global temperatures have been steady or falling since 2000, and the lack of activity on the sun portends further cooling. Also civilizations flourished in previous warm cycles. Where is the empirical evidence that climate change is ” serious, urgent, and growing?”

See the “WryHeat” blogs:

Your Carbon Footprint Doesn’t matter And Natural Climate Cycles

Obama: “Rising sea levels threaten every coastline.”

Reality check: Sea levels have been rising on and off since the end of the last glacial epoch13,000 years ago. The rate of sea level rise has not increased in recent decades over the nineteenth and twentieth century average. See: Sea Level Rising?

Obama: “More powerful storms and floods threaten every continent.”

Reality Check: There is no upward global trend in storms or floods. Besides, increased storminess is associated with colder climates. Clarke, M.L. and Rendell, H.M. 2009. The impact of North Atlantic storminess on western European coasts: a review. Quaternary International 195: 31-41.

Obama: “More frequent drought and crop failures breed hunger and conflict in places where hunger and conflict already thrive.”

Reality Check: The geologic record and other proxies show that in North America, droughts equal or greater in magnitude to those of the Dust Bowl period were a common occurrence during the last 2000 years. Studies in other parts of the world show no evidence that warming increases the frequency or severity of droughts. ( database)

It seems that President Obama is long on flowery rhetoric and short on facts. And he seems to be ignoring the costs.

A new Congressional Budget Office (CBO) report “The Economic Effects of Legislation to Reduce Greenhouse-Gas Emissions” shows just how weak the case for the proposed cap-and-trade plan really is. In fact, the CBO demonstrates that the theoretical benefits of Waxman-Markey to the United States fall far short of its costs. Also, the CBO report reveals that the costs borne by the U.S. may exceed the benefits to the entire world. The CBO estimates that even a pessimistic estimate of the danger posed by climate change is 3 percent of GDP, which won’t occur until 2100. At the same time, CBO estimates the hit to the U.S. economy from H.R. 2454 is in the range of 1.1 to 3.4 percent of GDP by the year 2050.

By the logic of the climate bill, we will be spending current dollars in the hope of saving future discounted dollars. The effect of carbon restrictions in the U.S. will be further discounted if other countries don’t go along with their own restrictions. See for an analysis of the CBO report.

Of course, if Congress fails with Cap & Trade, the EPA is set to regulate carbon dioxide as a pollutant based on some fantasy data, mainly from the IPCC.

The U.S. Chamber of Commerce, trying to ward off potentially sweeping federal emissions regulations, is pushing the Environmental Protection Agency to hold a rare public hearing on the scientific evidence for man-made climate change. If the EPA denies the request, as expected, the chamber plans to take the fight to federal court.

Why are many politicians pushing for carbon control? Some may be doing it through ignorance or hope of political gain, but others realize the controlling carbon controls energy, the life-blood of industry. With government control of energy, governments will control the means of production, and that is the definition of socialism.

It is time to ask all our senators and representatives: “where is the evidence.” I’ve asked that question in letters to President Obama several times so far, but he must be too busy to respond, or maybe John Holdren is still looking for it.