There is a significant correlation between the signing of the tax legislation and the price you are now paying at the pump.
The price began rising as speculation that such a deal was eminent, … became public. Once the deal was done, the prices climbed...
Why?
If you are an investor, the safest bet is oil. What’s going to happen, people stop driving?
Two, if you are not going to be taxed on your earnings, you invest where you’ll maximize your profits. Look at all this money! And I can keep 85%!
Bad news for us, is that their bets on the future of oil, cost us money each time we go to the pump.
During the past 24 months, no one knew where the tax rates would end up during the entire Obama presidency. Based on his campaign promises, and the significant majority in both houses, one would expect the Bush tax cuts to expire.
That meant it would make more sense investing in a manufacturing plant or some other long term investment that incidentally would create jobs. Later on, one could sell those shares that appreciated. Now, that the tax cuts continue for two years into our future, “betting” as opposed to investing, becomes the better alternative.
How futures work.
An investor places a bet that on such and such a day, the price of crude will be xyz… If crude is less on that day, he sells it market price and takes that loss. If crude is higher that day, (hmmm, a refinery has shut down for repairs), he sells at the higher price and has a capital gain that …. is not taxed very highly.
Therefore as soon as some form of certainty was set that the bill would be signed, even before the actual vote, your gas prices felt the upwards pressure to rise. Currently the rates range between $91 and $95 dollars a barrel for each month up to 2020... Yes, it goes that far forward in time.
So any type of geopolitical or supply interruptions, sending barrel price into the hundreds, creates profit for anyone making this bet.
Anyone who bets on sports, certainly knows how this system works. There is absolutely no difference.
Whereas in sports, the way to game the system is to throw the game… the same is true on the oil betting table. The bets get made, the system gets gamed, and anyone not in the know, gets fleeced.
The way out is to tax capital gains.
That sucks out the money.
And we go back to having our oil prices again determined by supply and demand, not market manipulators.
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January 4, 2011 at 3:30 am
kavips
Another blog challenged me why this was a Republican Tax code when it was passed by a Democrat House, Democrat Senate, and signed by a Democrat executive.
For the record: the Democrats passed an almost similar bill in the house except that it failed to include the top 1% in their tax cuts. For those at the top, their rates would revert back to those prosperous days of the Clinton Administration, back when everyone was happy. The bill passed the House and then, Senate Republicans (primarily Mitch McConnell) started screaming.. All Republicans voted against it, and it failed to pass the Senate. The Democratic president met with Republicans and decided to rerun the old bill, this time with the Republican plank attached that gave the wealthy top 1% their tax break.
It passed with every Republican voting for it.
That makes it a Republican tax plan, irregardless of how the power was stacked on paper, during the lame duck session…
You can quibble on how a person may wish to name it. But it’s passage is directly responsible for the increase in your cost at the pump…. .