Monday, July 26, 2010

Corporate Tax Cut Needed to Spur Growth

There’s a lot of frustration out there about the slow pace of economic recovery. Unemployment remains high, people are unemployed longer than ever before – and if there’s one thing we can’t afford, it’s for people to be out of work. The few available jobs pay lower wages than workers earned in the past. Too many families face foreclosures and empty cupboards. Even if government spends money training people, it won’t do much good if business are not hiring anyway.

Economists have remarked that recent recessions have been increasingly tough to shake off. Corporations that grew too large to fail – once honored as blue chip companies – have been bailed out with billions in tax dollars in order to survive.

Maybe it’s time we concede that capitalism in the United States is chronically ill. Conventional remedies, like lowering interest rates, aren’t solving the problem. I realize this may sound like progressive blasphemy, but maybe we need to drastically cut corporate income taxes for small businesses.

So far, little else has worked. The President’s economic stimulus program has kept the recession from being worse, but there’s been no economic rebound. Strangely, corporations are sitting on about $2 trillion in cash, and banks are flush with money to lend at historically low interest rates. But businesses are skittish about spending money. They’re concerned there won’t be a demand for goods they would manufacture, because unemployment is so high and people are so strapped for cash. Businesses need a shot of confidence to open the taps and circulate more money.

Corporations spend a lot of money finding ways to avoid paying taxes. With lower tax rates, businesses would be less obsessed with tax write-offs and more motivated to manufacture and sell tangible products to make profits the old-fashioned way. They’d also be less likely to subsidize politicians to finagle new loopholes. Isn’t it better for 100 small businesses to have low taxes than to give one corporation with 100 employees a tax break? Isn’t the likelihood of job growth significantly better?

The IRS reported in 2007 that 4.9 million of the 5.9 million corporate income tax filers had assets under $500,000 – truly the “small businesses” that hire the most people and spark the economy most effectively. The 9,317 corporate filers with assets over $500 million each, however, generated over 84% of the corporate tax revenue that year.

So, if we eliminate the corporate income tax on over 5.8 million businesses with assets under $500 million, we’d lose about $7.5 billion in tax revenue. The result would be a remarkable signal to small businesses that good times are ahead. The remaining tax on huge corporations would also meet the Obama administration’s goal of discouraging businesses from becoming “too big to fail.” Gone, too, would be convoluted corporate tax breaks that favor debt over equity and corporations over individuals.

Some would argue this places an undue burden on individual taxpayers. But if the federal government is of, by and for the people, maybe the people ought to be the ones paying for the bulk of it. Maybe tax dollars would become all the more precious for lawmakers to spend. After all, an argument can be made that, if the sheep industry pays $100 million in taxes, they ought to get $100 million in subsidies for the sheep industry. Take that tax away, and so also goes their argument. Tax dollars paid by human taxpayers should benefit human taxpayers.

But the greatest benefit would be that companies would start hiring again. Our tax policies should encourage businesses to create jobs, with living wages. The average salary at Chesapeake is $71,000, and their workers seem pretty content. I suspect most people would rather have a good job and pay modest taxes than be unemployed with a low tax rate; their disposable income at the end of the day is what matters most.

Corporate profits paid as wages to workers and distributed as dividends to stockholders become personal income. As incomes go up, more taxes are paid, which will more than offset the $7.5 billion in lost corporate tax revenue and reduce the deficit. The expiration of the Bush-era tax cuts for wealthy individuals would provide even more tax revenues. As the deficit goes down, optimism improves, more people are hired, more money circulates, and we approach Nirvana.

Brighter minds can work out the details. But the old ways don’t seem to work anymore. If the economy doesn’t turn around, Osama bin Laden will have won his war against capitalism. If someone has a better idea, let’s hear it.

Oklahoma knows oil gushers

BP’s out-of-control oil gusher in the Gulf of Mexico isn’t the first to grab the world’s attention. In fact, one of the most infamous blowouts was right here in Oklahoma.

The Oklahoma City oil field became the largest oil producer in the United States after it was discovered in 1928. In fact, until oil was found in the Middle East, the Oklahoma City field was the largest known oil reserve in the world.

The Indian Territory Illuminating Oil Company had been poking around looking for black gold in Oklahoma County for 27 years. Finally, after 25 dry holes and having spent $400,000, ITIO hit a gusher on December 28, 1928 which blew five thousand barrels of oil in the first 24 hours. That well eventually produced more than a million barrels of oil.

But that discovery well was nothing compared to what happened on March 26, 1930.

A few miles further south, near present-day I-240 and Bryant Avenue, ITIO was drilling another well on the farm of Vincent and Mary Sudik. Tired roughnecks forgot to fill the hole with mud before starting to pull 25 tons of pipe that, unknown to them, had pierced the top of the Wilcox sand 6,741 feet below them. The pipe began vibrating. Then came a roar, heard in Purcell 30 miles away, that permanently deafened some of the workers. The joints of pipe were shot like toothpicks into the air by gas that had built up over millions of years, waiting for this day to be released.

Thus was born the Wild Mary Sudik well. For the next eleven days, she vented 200 million cubic feet of gas and up to 75,000 barrels of oil a day. When the wind came from the south, oil coated downtown Oklahoma City and the state capitol building 10 miles away; when it shifted from the north, an oily mist rained down on Moore and Norman. Housewives couldn’t hang their laundry outside; fires and pilot lights were prohibited, and land and air traffic was rerouted.

The scene attracted worldwide attention. Newsreel photographers arrived by train, and their films were shown in theaters around the globe. Twice-daily national radio reports kept the world updated. The coverage, for eleven days, was every bit as extensive in its day as the BP Gulf oil gusher is today.

After two failed attempts, the third try to cap Wild Mary was successful. An estimated 800,000 barrels of oil were lost, and 211,589 barrels of oil were recovered from ponds and ditches. Thousands of acres of oil-soaked land had to be plowed under, and hundreds of buildings had to be repainted. Once tamed, the Mary Sudik well would eventually produce 5 million barrels of oil.
Wild Mary was only the most famous of hundreds of wells that tapped into the Oklahoma City oilfield. She was not the last gusher, either. Seven months later the No. 1 Stout ran wild for three days, gushing between 60,000 and 75,000 barrels a day. It was finally capped using lessons learned on Wild Mary.

By this time pools of oil were stored behind earthen dams all over Oklahoma City. One of those dams collapsed, spilling a layer of oil three inches thick onto the North Canadian River. Besides killing fish and birds, the river actually caught fire, with flames blazing forty feet into the air. Black smoke was visible from Enid. Two bridges were destroyed, and damage reached as far downstream as McLoud.

The Oklahoma story is best understood in the context of a nascent industry. Problems arose because drillers didn’t know better. Blowout preventers and drilling mud were recent innovations, and nobody expected the gas pressure to be that intense. A moratorium on production was imposed, not because of the environmental impact, but because the production glut caused the price of oil to drop below 15 cents a barrel. Once the price rose above $1 a barrel, drilling was allowed to resume.

Now, 80 years later, the oil and gas industry is dealing with another gusher, this time a mile beneath the Gulf of Mexico. While we don’t yet know exactly what caused it, we do know that safety and cleanup considerations have lagged behind our zeal to find new domestic sources of energy. There’s still a little too much of the wildcatter’s vinegar in a dangerous and dirty business that can cause widespread and long-lasting harm. And, while redundant precautions will add to the cost of drilling, they’re necessary until we can transition to cleaner and safer fuels. Ignorance is no longer an excuse, especially when the stakes are so high and the rewards so lucrative.