California's Bottomless Tax Well

California already ranks as one of America's five most taxing states, but if liberal activists have their way the Golden State will soon be competing for Number One. Having voted to raise the top income tax rate on the rich two years ago, Californians are this year being confronted with a slate of new ballot propositions to raise levies on motorists, smokers and property owners.

The jewel in this liberal crown is Proposition 87, which would raise taxes on oil extracted from California by 1.5% to 6%, depending on the price per barrel -- all in the name of reducing energy consumption and dependency on foreign oil. Let us run that by you again: The idea here is to tax California oil in order to get Californians to use less Saudi oil. Brilliant.

If approved, the law would raise costs on California's oil producers by as much as $4 billion over the next 10 years. California would overnight become the state with the highest tax on oil producers in the U.S. -- which makes as much sense as Vermont levying the highest tax on maple syrup. Not one penny, by the way, would go to close Sacramento's enormous government debt burden -- which may rise by another $40 billion if the multitude of bond initiatives for new public spending are also approved by voters this November.

Instead, the revenue would finance a new state agency, the Energy Alternatives Program Authority. The new energy authority would be responsible for passing out multi-million dollar checks to projects researching alternative energy. If you think corporate welfare is out of control in Washington, wait until Sacramento politicians start passing out these billions in subsidies.

A Law and Economic Consulting Group (LECG) analysis concludes the bill would in fact increase dependency on foreign oil because the tax increases the price only on domestic oil. Meanwhile, to make it seem as if the tax will be paid by "greedy" energy companies rather than voters, Proposition 87 would make it illegal for producers to pass on the tax costs to consumers. But wait. The "Yes on 87" lobby also claims that the law would reduce California oil consumption by 25%. How does a law that doesn't allow the retail price to rise reduce gasoline consumption? These are logical niceties that no one much cares about when fads are in season -- and taxing energy is the biggest fad of them all these days.

Former President Bill Clinton is starring in a pro-87 TV ad that began running last week. Al Gore is raising money for the initiative, alongside Hollywood economists Geena Davis and Julia Roberts. Its main financial supporter is Hollywood producer Stephen Bing, who is also rich enough not to care about any increase in energy prices; his $40 million contribution is believed to be the largest individual donation to a ballot initiative in history. One co-chairman of the initiative, Vinod Khosla, a venture capitalist, has contributed $1 million to the campaign. Mr. Khosla happens to own an ethanol plant outside of Fresno -- just the operation that, who knows, might be eligible for funding from this new energy welfare fund.

The biggest impact of Proposition 87 would be to make California oil relatively more expensive to produce than Saudi, or Venezuelan, or Canadian oil. So if 87 passes, Californians will be approving the equivalent of a tariff on their own oil. So the tax would actually make America slightly more, not less, dependent on foreign oil. This is an energy plan that only Venezuelan strongman Hugo Chavez could love.

Read the whole article here.

Tax Tidal Wave

From Brian Wesbury at First Trust Advisors:

"During the 12 months ending in September 2006, the household survey reported 2.54 million new jobs. Going back 24 months shows 5.5 million new jobs, an annual average of 2.75 million. This exceeds the booming 1995-2000 average of 2.34 million new jobs per year. The household survey, in contrast with the establishment survey, has consistently signaled a resilient economy. And it continues. In the past two months, the household survey has expanded by 261,000 per month, while the establishment survey rose by an average of just 120,000."

"This helps to explain the awesome tidal wave of tax revenues flowing into federal government coffers. Tax revenues grew 12% in 2005 and are up by 11.8% this year. Despite lower tax rates, total federal revenues are $410 billion higher this year than they were at their previous high water mark in 2000."

"The problem is on the spending side. Federal government spending this past fiscal year was $907 billion higher than it was in 2000 -- the equivalent of adding both the Australia and Ireland GDPs to annual spending. If ranked, total annual U.S. government outlays of $2.7 trillion in 2006 would be the world's fourth largest GDP: Just below Germany, but 10% larger than China's entire economy."

"The lesson of all this is that when tax cuts and technology work together to encourage productivity growth, the economy and markets perform well. Massive positive revisions to employment and incomes, rising stock prices and a flood of new tax revenues paint a much different picture than conventional wisdom had expected. But history is clear. As long as government policies do not hinder entrepreneurship, the U.S. economy can overcome even the most daunting of challenges. Have faith."

Read the whole article here.

300,000,000 Americans

Fantastic commentary on the United States reaching 300 million citizens by Stephen Moore:

"This demographic milestone is not cause for alarm -- as some prophets of doom would have it. Rather, it is cause for celebration. We 300 million Americans are on balance healthier and wealthier and freer than any population ever: We breathe cleaner air, drink cleaner water, earn higher incomes, have more leisure time, and live in less crowded housing."

"Our population is rising mainly because early childhood death rates in the U.S. have fallen by 90% in the last century, and continue to fall: A child born today in the U.S. is four times more likely to live to adulthood than one born in 1950, and 12 times more likely than one born in 1900. And these children will live longer, as the nearby chart shows. Life expectancy has increased by more than 30 years in the last century."

"This good news is an eloquent rejoinder to 40 years of seemingly endless jeremiads issued by neo-Malthusians from Paul Ehrlich to Al Gore. In the early 1970s, when the U.S. head count was one-third less than today, the then-president of the World Bank, Robert McNamara, famously proclaimed that overpopulation was a danger on par with nuclear war"

"Apocalyptics in the Club of Rome -- who complained that America has the "grossest national product" and whose famous screed, "The Limits to Growth," asserted that economic growth could not continue because of limited natural resources --

"[They] were wrong."

""Americans are the first best hope for the human race," as the historian Paul Johnson put it. That there are now 300 million of us -- and growing -- suggests that the future of freedom is in good hands."

Read the whole article here.

Compensation Growth Is Strong

From Allan Hubbard of the National Economic Council:

"In the past three years our economy has grown 3.7% per year, faster than any other major industrialized economy, and added more than 5.7 million payroll jobs, more than all the jobs added in the European Union and Japan combined. " ...

"Over the first half of this year, compensation growth has averaged a remarkable 6.3%, at an annual rate adjusted for inflation. This growth is much faster than in previous years." ...

"The difference between this economic expansion and the last expansion is that higher-than-expected energy prices have consumed much of this strong nominal wage growth. Inflation-adjusted wage growth without the increase in energy prices is similar to past economic expansions." ...

"With some politicians and commentators criticizing tax relief, free trade, immigration and labor policies, it is important to recognize the truth about wages and the distinctions between this economic expansion and past expansions. Increasing the tax and regulatory burden on our economy will not increase wages or make the current expansion more rewarding for workers. Without the tax relief, workers would be taking home a smaller portion of their paychecks. Higher taxes and a higher regulatory burden would just slow the strong productivity growth that we need to remain competitive in the global economy and increase standards of living."

Read the whole article here.