Monday, April 12, 2010

Mantra: Less Spending, Less Government, Lower Taxes

But how do you do it? Who will pay for it?

WAR is a racket. It always has been...
It is the only one in which the profits are reckoned in dollars and the losses in lives...
Only a small "inside" group knows what it is about. It is conducted for the benefit of the very few, at the expense of the very many. Out of war a few people make huge fortunes...
- Major Gen. Smedley Butler, former commandant of the U.S. Marines

Return with us to the days of yesteryear.

You've got to be at least 50-60 years of age to remember it.

There was a time when the oil companies marketed their own
motor fuels, products which they found, extracted, refined
and furnished, along with the kind of service found today
only in garages, quick oil change stations and tire shops.

Today's motorists buy and dispense their own gasoline and
diesel from harrassed convenience store clerks who have
trouble remembering if they turned the pump on, can't make
change and have no idea where you can get a flat fixed or a
balky engine tuned up.

Naturally, they work part time for minimum wage. They get no

Just ask them. They'll be glad to tell you.

Up until 1969, purveyors of happy motoring had a good reason
to go all out for the motorists' dollar and their custom in
high octane leaded fuel that made enormous cars purr at
anywhere from 70 to 100 miles per hour on fabulously smooth
highways. Use taxes were collected at the pump, apportioned
back to the states in Washington or at the state capitals.

All this was done at a price of less than half a dollar a

Today, at nearly $3 per gallon, sometimes almost $4,
consumers pay much higher use taxes, chug along in tiny cars
on tiny wheels and tires and brave rutted, collapsing roads
and bridges that would be unsatisfactory and unsafe bridle
paths for the huge iron monsters of the fifties and sixties.

Outside the exurbia of the Bos-Wash corridor and the
spaghetti bowls of Chicagoland, and the Great Lakes routes
to Erie and Buffalo, toll roads and bridges were few.

Who needed it?

Anyone born after the time when Elvis bought his first pink
Cadillac and Maybelleine just could not be true just do not
remember what it was like for a squad of four dudes to
descend on a car to check the oil and other fluids under the
hood, air up the tires and whisk out the floorboards,
emptying ashtrays and polishing windshields and mirrors -
all of this done under the supervision of a smiling man in
uniform who happily pointed out worn fan belts and knots on
tires, the need for an oil change or a dirty air filter.

He took the money or the credit card to the office, produced
a credit slip or the change and walked it back out to the
car. They called him the driveway salesman.

Why did petroleum marketing change so suddenly?

Actually, it did not change all that quickly. Like most
government actions it was all done on kind of a five year
targeting plan.

The full change didn't come in until the year 1975. So
between the years 1969 when Colonel Muamar Quadafi
nationalized American oil fields in Libya and 1974 when the
Arab oil embargo choked the life out of American mobility,
events of a very fundamental and very powerful nature took

The oil depletion tax allowance was reduced from 27.5
percent on a "percentage depletion" schedule to 22 percent.
Not long after, it was reduced to 15 percent, figured on
much more stringent requirments that result in much, much
higher corporate income tax.

Prior to this sea change, there was no limit on the
cumulative percentage depletion that could be taken over the
life of an oil property.

This state of affairs persisted for fifty years because of
the provisions of The Revenue Act of 1924.

It led to "vertical integration" of petroleum corporations
whereby they owned the leases, controlled the transporation
systems such as rail cars and pipelines, the refineries, and
the filling stations. The law gave oil firms an incentive to
charge a very high internal transfer price for the oil so
that the firm could earn a large allowance, depending on the
value of the crude oil sold to its own refining and
marketing companies.

That came to an end in 1974, the year the OPEC nations put
the squeeze on the American motorist by shutting down and
severely limiting the amount of petroleum they were willing
to ship. Today's newly minted grandmas and grandpas will
recall slowly creeping lines of cars that stretched around
blocks and blocks of American cities awaiting the chance to
put a measly ten bucks' worth in that tiger's tank.

It was no longer economically feasible to raise domestic
American crude above the wellhead and send it on its merry
way to marketers. Consequently, when the depreciation
schedule ran out on refining plants, there was no need to
build new ones.

There is no real shortage of product; there is a shortage of
refining capacity, which leads to a shortage of product.

On another accounting schedule, that of "cost depletion,"
the calculations were pretty much the same as in any other
ordinary depreciation of a piece of equipment or - let's say
- a refinery.

It's 6 one way, half a dozen the other.

As a result, the cost of doing business has grown
exponentially due to a relentless and unremitting onslaught
of terror carried out on the streets of mideastern cities
from Lebanon and Israel to Iran and all points in between,
including the financial district of Manhattan, London,
Paris, Madrid, Rome, Munich, Tokyo and any place else where
it's to the advantage of certain parties to create confusion
and disrupt business as usual.

Who provides the wherewithal for this new and increased cost
of doing business?

Why, the American taxpayers, that's who.

It costs big bucks to maintain carrier battle groups, their
complements of officers and enlisted men on flat tops,
destroyers and fast frigates, submarines, and aviation
squadrons of jets, supply transport planes, helicopters,
pilots, mechanics, fuel passers, aviation boatswain's mates,
and the ordnancemen who hoist the rockets and bombs and
attache them to the wings those supersonic, kerosene-burning
jet aircraft.

Then there are the attack and intercontinental missile-
bearing submarines that cruise the depths under the keels of
the vessels in the battle groups, most of them powered by
nuclear reactors, as are many of the larger the ships above

Add to that the cost of Marine divisions, Armies, Air Force
squadrons, spies paid by the CIA, and the communications
technicians and construction and transportation
professionals who operate on a cost plus, often no-bid

Such a deal.

Some of the savvy silver-haired moms and pops from that most
flamboyant OPEC nation of all - Texas, which, they say in
the tourism office, is like a whole other country - are
starting to wonder aloud what it would cost to restore the
independent oil operators who neither refine, nor import
crude petroleum back their full schedule oil depletion tax
allowances at a rate acceptable to them and forego the cost
of maintaining the huge apparatus that has stood watch over
the sources of petroleum used by American and European
refiners since the mid-seventies while eschewing the
offshore Louisiana and Texas fields, the east Texas fields
around Kilgore and Mexia, the Permian Basin, the Trans-
Pecos, the Salt Creek of Wyoming, the Montana Overthrust
Belt, Bakersfield and Ventura, Ohio, Illinois, Kansas, New
Mexico, Arkansas...

Though any tax attorney or accountant will argue until he's
blue in the face that it's actually a lot more complicated
than this, here is basically how it works.

U.S. tax law provides for so-called depletion allowances for
mineral deposits and standing timber used in the creation of
income. These allowances were instituted by the Revenue Act
of 1913 and derive from the Sixteenth Amendment, which
allows the feeral government to tax income, but not capital.
The Revenue Act of 1926 allows owners or operators of
mineral properties to calculate depleiton as a percentage of
gross income at the applicable rate, chopped off the top.

New revisions to the code effective in 2001, allow the
depletion allowance to be calculated on mineral deposits on
either a cost or a percentage basis.

Since 1975, integrated producers have not been allowed to
calculate oil and gas depletion on a percentage basis.

The law requires that timber depletion must be calculated on
a cost basis. After all, forests are renewable. Oil is
available only in finite quantities, unless you have time to
wait around from one geological epoch to another.

Cost accounting in the former scenario is as follows:

Let's say an oil corporation has sunk $2 million into a
property and is busy pumping and shipping crude.

The gross earnings are a return on the investment,
proportionate segments of which are assigned on a yearly
basis. Cost depletion permits yearly deductions for the
receipt of $2 million tax-free over a period of the duration
of time it is feasible to pump crude out of the well.

A natural deposit, the law allows the owner to separate it
product into recoverable units and those units to be
multiplied by the number of units sold annually.

The result is the depletion reduction permitted for that

House of Representatives candidates vying for the nomination
of their party or incumbents seeking re-election in the
general election on November 2 would do well to be able to
answer questions about a restoration of the full range of
the depletion tax allowance on the national economy.

The American Petroleum Institute has lists of economists who
are able to and do perform econometric studies of the impact
on local economies as to jobs, taxes, domestic spending and
mortgage lending.

Oil field jobs in the domestic market pay anywhere from
$4,000 to $5,000 per month for floor and derrick hands,
slightly less for roustabouts, laborers, drivers and
offshore cooks, crane operators, tankermen and the like.

Tool pushers, drillers, company men and mud engineers make
quite a bit more, as do geologists, accountants and
operations and marketing executives.

The working men and women of the OPEC region of Texas,
Louisiana, Arkansas and Oklahoma are ready and willing to go
back to work for a good living wage.

Representative Mickey Edwards, R-Okla., introduced
legislation to raise the depletion tax allowance from 15
percent to 27.5 percent in fiscal year 1986. The
Congressional Joint Committee on Taxation estimated at the
time that the measure would have provided almost $1.1
billion in revenue.

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