Tag Archives: oil industry

Taxing the Sun

The new 30% tariff on imported solar panels looks like a direct economic hit on the alternative energy industry, imposed by the dinosaur in the White House.  That the man is owned by the oil industry is becoming increasingly obvious.  First there was the okay to the final segments of the Keystone XL pipeline.  More recently, just about the entire coastline of the US has been offered for off-shore oil and gas drilling.  Our Secretary of State is former CEO of Exxon, and the head of the Environmental Protection Agency has spent much of his career fighting the EPA.

Now we have a 30% tariff on solar panels?  According to an Associated Press report, the tariff was sought by Suniva, Inc., which sought bankruptcy protection in April, and by the American subsidiary of Germany’s SolarWorld.  They claimed the 500 percent increase in imported solar panels over the past five years has led to a ruinous price collapse.  Nearly 30 American solar-manufacturing companies closed in that time.  They claimed big, bad China plotted to flood the global market with cheap products to weaken US manufacturing.  Apparently foreign companies manufacturing in the US are exempt from the tariff, but they now have more wiggle room to raise prices.

So the US President jumps in to stop China in its tracks, apparently, and to raise the price of solar panels for everyone.  But, as Senator Ben Sasse, R-Neb, claimed, tariffs are a tax on consumers.  Moreover, a tax on imported solar panels will reduce choice and supply for everyone, forestall or delay installation, and constrict employment in the alternative energy field.

A tariff is defined as a tax or duty on a particular class of imports or exports.  It is claimed “protective tariffs” are intended to make domestic products more competitive.  Tariffs are not new in the US, with the first imposed in 1789. Since then, well over thirty acts affecting tariffs have been implemented.

The 1789 tariff, also called the Hamilton Tariff Act, was the second piece of legislation passed by the fledgling US Congress.  Two years later, excise taxes on whiskey, run, snuff, and refined sugar were initiated.  The purpose of both types of taxes, according to the first Treasury Secretary, Alexander Hamilton, was to pay Revolutionary war debt, allow the government to function, redeem at full value federal debts, and pay the debts of states.

President George Washington made protective tariffs a national security issue.  In his 1790 State of the Union address, he claimed protective tariffs, especially for military supplies, was crucial for US independence.

Between that time and 1860, tariffs and excise taxes comprised 80-95%. of federal income.  The amounts of each varied.  Thomas Jefferson abolished the whiskey tax, but it was re-instituted in 1812.  When national debt was paid off in 1834, Andrew Jackson abolished most excise taxes and halved tariffs.  By this time tariffs had become a major political issue, especially following the tariff of 1828, the so called “Tariff of Abominations,” which imposed a 38% tax on 92% of imported goods.  Most tariffs were instituted to protect domestic industry, favored by Whigs (which later became Republicans), who were mostly Northeastern industrialists and industrial wage earners.  Southern Democrats strongly opposed tariffs.  In the South, tariffs raised prices for every household and also made it harder for the British textile manufacturers to buy their cotton. Some historians believe the cause of secession was not slavery but tariffs.

The Republican platform of 1860 favored higher tariffs. Abraham Lincoln made tariff increases one of his priorities. The Morrill Tariff passed in 1861, after seven Southern states had seceded and their Congressmen had resigned.  The Morrill Act raised tariffs from 17% overall and 28% on dutiable items to 26% overall and 36% on dutiable items, but it wasn’t enough to feed the government and the approaching war, so a second tariff bill later that summer raised tariffs another 10%.  Lincoln also instituted the first income tax in the US, under the “Revenue Act of 1861,” but it was repealed ten years later.

After the Civil War, tariffs fluctuated mildly but remained, with excise taxes, the main source of federal funding until 1913.  This was the year the income tax went into effect.

Since 1913, most of federal income comes from individual income taxes, payroll taxes (later), and corporate income taxes, with 41% coming from individual income taxes.  Excise taxes apply to “luxury” items, like tobacco, alcohol, and gambling, but also to telephone and utilities, among other things.  Excise taxes comprise about 3.8 percent of federal income.  Tariffs now constitute only about 1.7% of government revenues, $30 billion in 2012.

Far from being a supporter of free trade, the US has 12,000 specific tariffs on imports.  Tariffs on imported tobacco products are the highest and can run up to 350%.  Peanut tariffs that date back to 1933 run from 131.8% for shelled peanuts to 163.8% for unshelled peanuts.  New Balance shoes enjoys a 48% tariff on foreign sneakers like Nike and Adidas.  There’s a 40% tariff on Japanese leather.  We pay a 100% tariff on European meats, truffles, and Roquefort cheese, just to name a few.

It is arguable whether tariffs protect domestic industry, or benefit a country’s economy, especially if they start trade wars with other governments.  In the case of the solar industry, the added cost to imported solar panels may be prohibitive for large-scale projects that could employ large numbers of people.  It looks like a protective tariff, not for domestic solar panel manufacturers, but for the oil industry.  But the good news is that the solar industry is thriving, considering the 500 percent increase in imports over the past five years.  No wonder the oil companies are threatened.

Making Widgets

mcdtruckgov0905           I tried to explain the machine age paradigm to Ronnie.  It seems obvious to me, but I have never put the pieces together in a sequential way.

Say there’s a widget manufacturer who employs 100 people to make 100 widgets (one person/widget) per day.  He gets a machine that can do the same, so he needs only one person to run the machine.  99 people get fired.

Other than payments on the machine, its upkeep, etc., he saves in the short term.  However, as machines don’t make or spend money, he has also depleted the market for widgets, because 99 people must make do or do without.  All of a sudden, he is producing more widgets than he can sell, and it’s not so easy to adapt a machine to produce a more marketable product.  So the employer is forced to cut production or expand his market, thus generating more costs, like advertising, distribution, and the like, or to cut quality by using cheaper raw materials.

Meanwhile, the machine is pumping out widgets faster than the market can absorb them, and it requires servicing, maintenance, and other costs that were not necessary before.  Competent service becomes necessary to keep the machine operating.  If the machine must be shut down, it’s as though 100 laborers called in sick or went on strike the same day.  All work ceases, except that necessary to fix the machine.  Even if the machine remains functional, it runs the risk of over-supplying the market with monotonous product that piles up on the shelves, in storage, or on the wharves.

In the Industrial Revolution, as more laborers were replaced by machines that created debt and relentless overhead—without the flexibility inherent in a human labor force—the widget manufacturer’s problem is magnified on a world-wide scale.  The face of the labor force changes to machine operators, mechanics, salesmen, advertisers, designers and other people working to assist the machines rather than making widgets.  Those with the skills to make widgets, this’es, and that’s, have been sidelined by machines and a different labor force geared to working on the machines.  However, only the widgets bring revenue into the company, and only if the widgets sell does the company generate the revenue to stay in business (unless you count Wall Street, in which the company is in the stock churning rather than the widget making business, for all intents and purposes).

We also have overhead costs of advertising and distribution that were not necessary when the widget manufacturer had a human labor force in a market that could absorb the products as they were produced.

The automobile industry is a perfect example of the Industrial Revolution gone haywire.  Henry Ford’s assembly line concept essentially converted men to machines and eliminated labor wherever possible.  But Henry Ford believed in paying his labor enough so they could afford the cars.

State and federal governments were happy to help Henry out.  Oil magnate turned banker John D. Rockefeller also benefited mightily from the highway system government provided to support the auto industry. Thus massive government help through the highway system made autos appear cheaply available to large numbers of people.  This allowed more people to travel farther and faster, but it spawned urban sprawl and seduced people away from public transportation, passenger rail, buses, trolleys, horses, and bicycles.  It also created multiple levels of  taxation and bureaucracy to regulate and pay for the highways, bridges, gasoline, licenses, tags, and auto insurance.

As public transportation deteriorated, the automobile became more necessity than luxury.  Today, the economy is skewed in large measure to industries that work for cars—everything from insurance to tire shops, service, sales, advertising, stocks, oil, and the glut of government that the auto industry has generated.

Meanwhile, we have a superabundance of cars that fewer and fewer people can afford to buy, maintain, buy gas for, or park.  We also have the problem that there’s nowhere to go.

Every place looks like every other place in our homogenized America.  Traffic is so bad that you spend more time in the car getting from here to there than you spend at your destination.

Now Ford Motor Company is moving to Mexico.  Ever wonder if that wall The Donald wants to build is to keep Americans in rather than keeping Mexicans out?