Saturday, November 05, 2005

Home Heating Concerns

Despite a very warm fall here in the Midwest, we know that winter is coming soon. With recent price increases in natural gas and home heating oil, American families will be paying more this year to fight off the winter’s cold. This will have some repercussions on spending decisions, as consumers will seek out ways to conserve by insulating, turning down the thermostat (as our University will be doing – Mr. Rogers had something to teach us about wearing that sweater when he came to the neighborhood), and similar means.

However, there is only so much you can do through conservation. Your furnace will burn fuel, and if that costs more than last year, it will crimp some discretionary spending. For those with thinly stretched budgets (which can involve all levels of earnings), that may mean some difficult choices. Demands on energy assistance programs through groups like the Salvation Army will probably be significant this year.

Of course, these kinds of issues that hit the pocketbooks of Americans can prove irresistible to our elected officials. Dick Morris, who has a pretty good crystal ball when it comes to seeing political issues that matter in elections, has recently opined that the heating oil issue will be an important one for politicians to address.

One approach being floated: impose a “windfall profits tax” on oil companies and diverting a portion of those profits to offset high heating costs. Companies holding commodities that have increased substantially in value would be subjected to a special tax on profits made by selling these commodities. We tried this in the 1970s, and some want to try it again. Democrats have been leading the charge, as some of them have expressed outrage about oil company profits. But some republicans are also joining the bandwagon. Susan Collins of Maine has recently joined democratic senator Reed from R.I. in a recent proposal.

Among the many problems with this type of tax is the fact that Congress seems to have myopia when it comes to energy policy. We just recently passed legislation designed to increase oil and gas exploration by granting tax incentives for those activities. Now, we seem to be sending the opposite message. Taxing sends a signal that we want less of this activity. Moreover, it sends a destabilizing message to industry that government policymakers can’t be trusted (as if we need more messages like this!), which may make future incentives less effective. (Ever hear of the boy who cried wolf? Perhaps the PC crowd has chilled the free expression of that story to the point where our legislators have forgotten what it means.)

Though I sympathize with those faced by higher costs, a federal solution is not the answer. These representatives and senators should resist the temptation to reap short-term political gains from this issue. That will be hard, as Christmas is coming, and we all love Santa Claus.


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