How Will Business Respond to Higher Taxes?

President Obama has said publicly that he does not believe that the oil business will pass higher taxes on to consumers in the form of higher gas prices.  He is partially right about this.  Taxes are an expense, and business usually uses are variety of methods to deal with increased expenses.  They include...

1.  Cutting non-profitable services.
2.  Consolidation of operations.
3.  Selling off portions of the business.
4.  Cutting perks to employees.
5.  Playing games with the books.
6.  Passing increased costs onto consumers in the form of higher prices.

All of this means one thing, and only one thing.  Companies will eliminate jobs.  Yes, cost increases will in part be passed on to consumers, but the consumers include other businesses which have to respond to their higher costs.  Raising taxes on oil companies will resort in a new round of layoffs and more home foreclosures that will deepen the recession.

This is why it is bad for government; City, County, State or Federal to resort to raising taxes during a recession.  It makes the employment problem worse, not better.  At the Federal level, more unemployment means higher deficits.  It means more people on the government dole and fewer tax payers.  We need to go in the opposite direction.  More working Americans paying taxes and fewer receiving government benefits.  Raising taxes may lead to more revenues, initially, but in the long run it will make a bad problem much worse.

The answer is to give the oil companies a better opportunity to turn their obscene profits into the development of additional product.  That is normally what a business does.  They use profits to expand.  When the opportunity to grow your company does not exist, you have not choice but to line the pockets of executives with more cash.  The executive knows sooner or later their cash cow will die without the opportunity for additional growth.  You either ensure your long term job security by taking care of the company, or you simply take care of yourself.

Open up areas for further oil exploration and drilling.  It will put people to work.  It will provide security.  Eventually, more product on the market will lead to lower prices at the gas pump.  Other business, outside of the oil and gas industry will have the funds to hire more people.  That will put America in the right direction.  You increase tax revenue by having more tax payers, more people who are paying taxes because they are earning an income high enough to pay taxes.  Where now we have so many receiving payments from the government.  You reduce government costs by having fewer people needing government entitlements.

Opening up American oil and gas fields will also help improve the trade deficit.  That will boost the value of the US Dollar against foreign currency.  It will stave off inflation by lowering the cost of energy, which is an input into every industry in the United States.  It will put more money into the pockets of every American.  Money that can be spent on other goods and services.  That is real trickle-down economics.

Allowing the US oil and gas industry to expand will not solve all of America's economic troubles.  It alone will not get the country out of recession and into a strong recovery, but it is a good place to begin.  Only support candidates in 2012 who will pledge to support the growth of the oil and gas industry in the United States.