Alaskan King Tab

Alaska's Senate is suffering from serious brain freeze.

Last night, they voted 15-4 to impose a new escalated tax on oil company profits whenever crude oil is above $50 per barrel.

For every yea vote on this bill, its caster undeniably can be said to exhibit at least one of two characteristics:  startling ignorance or shameless pandering.

The escalating tax (allowing Alaska to take a larger and larger bite of oil company profits as energy prices rise, despite contributing no incremental value to the equation) will saddle consumers with an unwelcome burden right when they need it least.  This measure ensures that whenever oil is in short supply compared with demand, oil companies will have a diminished incentive to produce it.  Invariably (and empirically demonstrably) this will further restrain supply, leading to yet higher prices (and a yet higher tax rate).

Yes, it's a hideous and unmistakably inevitable cycle.  All supporters of the bill (and indeed the 4 dissenters, whose qualm was that the new rates weren't high enough!) must either fail to grasp the above sequence of consequences or be willing to inflict these significant ill effects, in hopes of short-term personal political benefit.  After all, if you consider high fuel prices from a superficial, emotional perspective, who's to blame?  Why, it's the mean old man at the gas pump who takes my money.  Punish him, Uncle Sam.  Punish him and I'll vote for you again.

That legislators happily pander to this emotionally-driven fundamental misunderstanding is disheartening to say the least.  The prospect that some may share in the misunderstanding is downright frightening.

Thankfully, we in New York don't have to worry about passage of a measure escalating oil profit taxes with the price per barrel.  We already have it in place.

Why is it so tempting to fight the laws of supply and demand, when we can use them to our advantage?  Instead of making it more costly for the suppliers to supply, let's try to increase the supply.  Let's lift restrictions on exploration and refinement.  Let's lower the cost of doing business for oil companies, so savings can be passed onto consumers.

Oil companies are, after all, rational entities participating in a fiercely competitive marketplace.  As a result of that competition, they'll lower prices as far as possible, while still maintaining the return demanded by their equity holders (not evil tycoons and world-dominators, but pension funds and endowments and retirement account holders and you and me and everyone who chooses to hold the shares).

The fact that oil companies experience a lower return on equity than other major industries like financial services and pharmaceuticals is good evidence that it experiences healthy price competition.  If cost pressure is taken off the industry by way of tax relief (or lack of tax increases anyway), the incremental savings (lack of incremental costs) will undoubtedly be passed to consumers.  Any company failing to do so would immediately find themselves at a price disadvantage and lose significant business.

Free markets.  You can't beat 'em.  But you can screw your constituents trying.