Friday, June 15, 2012

With Republicans Like These, Who Needs Democrats?

Sheffield Nelson has a long political resume, including a former Chairman of the State Republican party and former Republican candidate for Governor.    He is now the leader of a movement to raise taxes in the state.  In this case, a tax on natural gas pulled from the ground called a "severance tax".    His team has not garnered enough signatures yet to get the proposed tax increase on the ballot, but there will still be at least one tax increase for patriots to vote down....

Republican Representative Johnathan Barnett was one of the leading advocates for a referred amendment to "temporarily" raise the sales tax (sans groceries and medicine).  It will be on the ballot this November.  Amend the state constitution to raise a tax for ten years?  And where are the Republican representatives and Senators who have come out against this proposed tax increase?

With Republicans like this, Arkansas does not need Democrats.    We especially don't need them tag-teaming up to try and convince us to give them even more of our earnings.  As the late great George Carlin put it, “The word bipartisan means some larger-than-usual deception is being carried out”."  Increasingly, politicians go into the Republican side of the system opposing tax increases, then after the system has a while to work on them, they become tax-and-spenders and central planners.     

This is exactly why we have seen the rise of grassroots organizations like Secure Arkansas (of which I am a member), Conservative Arkansas, and several Tea Party groups (such as the mis-named Washington County Tea Party which actually operates in the whole NWA region) in the state.    They are a response to a political system which assigns them to a team they see as increasingly working to frustrate their interests.   

Not that the sponsors of these two tax proposals are even in agreement.   There seems to be a bit of division in establishment Republican ranks as to which proposal to raise your taxes ought to be implemented.   It is commonly said that Nelson does not care for the Stephens'.  The Stephens have substantial gas interests in the state. Further, the Barnett proposal would use the tax revenues to fund a bond purchase (politicians love debt, they can buy votes now and your children can pay off their promises later).    As financial kingpins who often get a cut of the state's bond issues, the Stephens empire benefits from more government debt in the state.    Nelson's proposal does not mention the debt.   The funds from both proposals would mostly go to the same place- highways.
I find it interesting that so many candidates talk about how opposed they are to tax increases in general, but so often it turns out that the one tax increase they favor is the proposal currently being discussed.   Yep, they are against tax increases, but the state really needs this one.    Look, a tax increase right now is crazy talk in general and these two proposals are specifically crazy in their own, special, individual way- except for the special interests who will disproportionately benefit from them.

The sales tax increase for roads is specifically crazy because road funds should be payed in correlation to road use.   That means motor fuel taxes and vehicle registration, just like we do it now.   Shifting the costs for roads onto sales taxes means that elderly people on fixed incomes who can't even drive will subsidize trucking firms and companies with significant in-house trucking fleets.   They tear up the roads, and the bill gets sent to someone else.  Its bad government 101.

The severance tax advocates could at least argue that drilling activity increases road use so that there is a somewhat better correlation between who pays the taxes for roads and who uses them.   And the proposal avoids the catastrophic misstep of pledging all the future revenues of the tax to fund a debt issue.  But the biggest problem with the tax increase proposal is that there will not be any additional revenues if it is passed.  I predict a loss of revenue from the tax's target of natural gas drilling.

Nelson commissioned Dr. Charles Venus to do a "study" on the effect of raising the taxes.  Venus claimed it would increase tax revenues by about $150 million dollars.   He is wrong.   Remember that our current rates 5% for strong producing wells, but 1.5% for the low-margin weak-producing wells) represent a 1,600% increase in severance tax rates from their low level when Gov. Mike Beebe took office.   And this titanic increase in tax rates produced a 10% drop in tax revenues!  That was in 2009.  Barely three years later tax-increase advocates claim that if we raise the rates again this time it will have the opposite effect!    
If we raise the rates it will not produce growth, it will cost jobs just like it did last time.  Gas drillers can go anywhere they want to drill.   These projects are decided on the margin.    This is about killing drilling, not raising revenues.   I am in the oil and gas business myself, and let me tell you that a lot of land owners love to see us coming, not just with royalties from drilling but many more get big checks for pipeline easements.  All that, along with the jobs to build them, goes away at some tax point.    

In most states the severance tax does not start until drilling expenses have been recouped.  In this proposal, they are taxed from day one, making the effective rate almost triple the nominal rate of 7% in the current profit environment (about 25% profit).    Simple comparisons of the tax rate in neighboring states can't be made because of this key structural difference.    If it costs you six million to drill, and your well is a poor well that only draws five million worth of gas, not only would your business venture lose a million dollars, but the state would claim you owed $350,000 worth of taxes on your "profits".  Would you pick Arkansas to operate in under those conditions?  Neither will the drillers.

The backers of both proposals are using Obama-esque arguments that tax increases  will "create jobs".    It is rubbish when he says it and its rubbish when they say it.   The population is split between big-spending/high taxing central planners and responsible people who just want to be left alone.  Unfortunately, instead of each group getting their own political party, the central planners and big spenders have all of the Democratic Party and most of the Republican one.   They only quibble about whose friends get the money.  That's why these grassroots groups mostly rise up on the right.  They are dis-satisfied with a political system which gives the other world-view a political party but only pretends to give them one.   With Republicans like this, who needs Democrats?


Blogger Mark Moore (Moderator) said...

Here we have two groups of Republicans fighting to get separate tax-increase measures approved in November. With Republicans like this, who needs Democrats?......

2:59 PM, June 15, 2012  

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