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Oil Prices Are Not Taxes II

Posted By Barry Ritholtz On May 17, 2004 @ 5:36 pm In Finance | Comments Disabled

OPEC

Last October, I ranted that “Oil Prices are not a tax increase [1].”

That outburst was focused mostly on the Orwellian Newspeak aspects of the phrase. But in the intervening months, I’ve come up with several other reasons why oil increases do not resemble tax increases:

· Oil Price Increases take money out of the country; Taxes stay in the U.S. where they are spent and re-spent on Goods & Services. This raises (or at least doesn’t hurt) GDP, versus crude hikes — which depress GDP.

· Technically speaking, the velocity of tax money is positive; Cash spent on overseas crude has a significantly negative coefficient – meaning that as the cash leaves the country for oil purchases, it leaves circulation, ultimately decreases GDP;

· We had a revolutionary war over Taxes without Representation – Last I checked, neither you nor I get to vote for anyone in OPEC; We do get to vote for school boards and senators and mayors and others who set tax policy;

· Tax increases are anti-inflationary, as they – initially at least – slow growth; Oil Increases are inflationary, as they are the result of fast growth;

· Oil price increases are a function of increased demand or slowing supply; Tax increases are a function of collective decision making by society.

You get the general idea. For more details, go read 1984 Redux [1].”


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[1] Oil Prices are not a tax increase: http://bigpicture.typepad.com/writing/2003/10/repeat_after_me.html

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