Government manipulation of energy markets is a cause of, not a solution to, high energy prices

From:The Josiah Bartlett Center for Public Policy 

High energy prices are a major concern of voters, so naturally the political party that controls Congress and the White House has offered a set of serious policy proposals to lower prices as quickly as possible. 

Hey, we can dream, can’t we?

In reality, voters are being sold a container ship full of malarky about energy prices.

On June 15th, President Biden bizarrely blamed both Vladimir Putin and oil refiners for high gas prices and urged refiners to increase production. It was bizarre because the claims had been debunked just days before by the federal government’s own Energy Information Administration. 

The EIA published an analysis on June 10th, five days before Biden’s letter to oil refiners, that dated the surge in oil and gas prices to 2020, not to the war in Ukraine that started four months ago. And the analysis estimated that refinery capacity would hover between 94% and 96% all summer. 

Sen. Ron Wyden, D-Ore., has proposed doubling the taxes of any oil company that manages to enjoy profits of 10% or more. 

That’s slightly lower than the average profit margin of all industrial sectors in the S&P 500, and just 1.7 percentage points higher than the average for the energy sector, Yahoo Finance columnist Rick Newman reported in April. 

The tech, pharmaceutical, real estate and financial sectors all posted average profit margins last year of more than double the level Sen. Wyden has set for triggering oil company punishments. 

In New Hampshire, Democratic politicians are blaming the Legislature and the governor for high energy prices, claiming that Republicans failed to pass a slate of renewable energy bills to reduce the state’s reliance on fossil fuels. 

But they haven’t cited a single bill that would have lowered gas, oil or electricity prices this summer. 

A story about supposed “legislative inaction” on clean energy published in the New Hampshire Bulletin listed eight bills that were supposed to help deliver us from our current reliance on fossil fuels. Five of the featured bills have passed, which is not something customarily associated with “inaction.”

Not one of the five would have had any effect on current energy prices. One actually delays the reduction of Eversource electricity rates for a year and keeps the ratepayer-subsidized Burgess Biomass plant open. The plant buys wood pulp at above-market rates and has already cost Eversource ratepayers an extra $150 million for electricity.

The three other cited bills were to buy electric buses and electric state vehicles, and to accept federal money for electric vehicle infrastructure. They would have had zero effect on prices this summer.

Voters are being asked to believe that our “reliance on fossil fuels” has caused the recent energy price increases, and therefore anything that begins to shift the energy mix away from fossil fuels will help lower prices.

That is nonsense. The price increases have all been caused by a shortage in the supply of fuels relative to demand. 

Simply put, demand for energy surged in 2020 as the economy roared back to life earlier than expected, and supply has remained far short of demand ever since. 

What about renewables? In New England, gas comprises 53% of the energy mix, and nuclear another 27%, according to regional grid operator ISO New England. Renewables are up to 12%.

State subsidies for wind and solar power would have made no noticeable dent in the region’s reliance on fossil fuels for two primary reasons.

1. Even if we could build renewable generation capacity on a massive scale in just a few years, wind and solar still rely on wind and sunshine. They aren’t yet capable of replacing gas or nuclear as a reliable source of baseload power.
2. Renewable energy is not inherently cheaper or more reliable than natural gas. It’s become more competitive, and soon it might become a significantly cheaper source of energy. And if that happens, it won’t need subsidies or government “investments,” because the market will respond on its own.

What could have made a difference? Fewer government interventions to direct investments to satisfy the interests of politicians rather than consumers. 

When the government intervened to block pipelines, prohibit fracking, subsidize U.S. shipbuilders, divert resources to more costly “green” energy, and decommission functional, nuclear power plants, consumers suffered. 

“Under wholesale markets, private companies have carried the risks of uneconomic investments, not utilities and their customers, ISO New England concluded. “Consumers have benefited from this least-cost resource mix created through competitive markets.” 

A competitive market focuses on providing energy at the lowest cost. It will do this absent government interventions, just as markets for food, clothing, power tools and doughnuts do.

Government interventions that prevented investors from pursuing lower costs, and instead attempted to steer money to higher-cost alternatives, made energy markets less efficient, raised costs, and crimped supplies.

Repeal of the protectionist Jones Act alone would drop gas prices by 10 cents a gallon, according to a JP Morgan analysis.

To assert that the solution for high energy prices is more government interventions to further hamstring oil and gas companies would be like saying that the solution for the Boston Celtics’ scoring woes is to put more Golden State Warriors on the court. 

The answer is not more government manipulation of the market. The answer is to lift restrictions that interfere with the market’s natural pursuit of a “least-cost resource mix.” 

Revenues rise again as lawmakers prepare to vote on Delaware’s 2023 budget

From: Delaware Public Media

Delaware gets another revenue boost as lawmakers prepare to finalize the state’s 2023 budget.

The Delaware Economic and Financial Advisory Council added another 89 and a half million to the budget bottom line with its June revenue forecast.

Continued strength in personal income tax and corporate tax revenue fueled latest projected upgrades for both the current fiscal year and 2023.

The latest numbers allow lawmakers to spend up to $6.57 billion dollars next fiscal year.

The budget-writing Joint Finance Committee has finished work on the state’s 2023 operating budget, submitting a nearly $5.1 billion spending plan with just over 378 million in one-time supplemental spending.

That’s well above the $4.9 billion budget and $200 million in one-time supplemental spending Gov. John Carney proposed in January.

Lawmakers need to approve the operating budget – along with the state’s capital spending bill and Grant-in-Aid bill before the legislative session ends June 30^th.

States Whose Unemployment Rates Are Bouncing Back Most

From: Wallet Hub

May’s jobs report showed a slight slowdown in growth. The economy gained 390,000 nonfarm payroll jobs, a decrease from 436,000 the previous month. In May, there were notable gains in sectors including leisure and hospitality, professional and business services, and transportation and warehousing.

Now, the U.S. unemployment rate sits at 3.6%, which is still slightly higher than it was before the pandemic but is far lower than the nearly historic high of 14.7% in April 2020. This overall drop can be attributed largely to a combination of vaccinations and states removing restrictions. It will take more time for us to reduce the unemployment rate to pre-pandemic levels than it did for the virus to reverse over a decade of job growth, though.

In order to identify the states whose unemployment rates are bouncing back most, WalletHub compared the 50 states and the District of Columbia based on six key metrics that compare unemployment rate statistics from the latest month for which data is available (May 2022) to key dates in 2019, 2020 and 2021.

Bill aims to cut real estate transfer tax

From: Delaware Business Times

A new bipartisan bill is seeking to reduce Delaware’s real estate transfer tax by 25%, essentially undoing a state increase from five years ago.

House Bill 358, introduced on March 31 by lead sponsor Rep. Bill Bush (D-Dover), has already garnered 17 House sponsors and 10 Senate sponsors spanning both the Republican and Democratic parties, including both party leaders in the House.

The bill will be first heard in the House Administration Committee, although a hearing has yet to be scheduled.  If enacted, the tax cut would take effect July 1.

HB 358 would reduce the state’s portion of real estate transfer tax back to 1.5% from 2.5%, while local jurisdictions would continue to collect 1.5% of a sale’s value. Seeking to close a budget deficit of hundreds of millions of dollars in 2017, legislators raised Delaware’s realty transfer tax from a longtime 3% on most properties to the current 4% with the state collecting the extra percentage point – in rare instances when no local tax is collected, the state collects 3%.

“Typically, this cost is split between buyer and seller. However, in the current competitive housing market, prospective buyers are often paying the entire tax to convince sellers to accept their offers,” Rep. Kevin Hensley (R- Odessa), who works in the real estate industry, said in a statement.

Rep. Mike Ramone (R-Pike Creek) said that legislators agreed to raise the transfer tax for only two years to cover the budget gap, but that expiration date wasn’t in the final bill, and it continues to be paid on sales small and large.

“Our high realty transfer tax is impacting two groups that can least afford it – millennials and seniors,” Ramone said in a statement. “If we can do something to both facilitate home ownership among young people while giving our older citizens a less costly opportunity to gracefully transition into their golden years, I think we have an obligation to do it.”

A decrease in tax revenue would come at a time when Delaware is seeing booming real estate sales. The state’s independent fiscal analysts board, the Delaware Economic and Financial Advisory Council (DEFAC), estimates that Delaware will pull in nearly $300 million this fiscal year from the real estate transfer tax alone, about 25% more than it did last year. That increase has been spurred along by rising property values across the board, but also by a number of high-value sales, including nearly all of the prior decade’s Top 10 sales, that have contributed millions to state coffers on their own.

Delaware has traditionally ranked at or near the top of all states in terms of its real estate transfer tax, a distinction that has led the state’s Board of Realtors to lobby for a reduction for several years. There are 14 states that have no such tax on property sales, while neighboring states like Pennsylvania and Maryland charge 1% or less on a sale.

According to Long & Foster Real Estate, the median price of a home sold in Delaware as of February was $335,000. HB358 would reduce the transaction cost for the sale of such a home by almost $3,400.

Based on the latest estimates from DEFAC, HB358 would allow homebuyers and sellers to collectively retain more than $100 million annually from the tax cut. DEFAC has projected to end the current fiscal year with a budget surplus of nearly $800 million, which has pushed lawmakers to find ways to return those savings to residents.

One bill that has already received bipartisan support will cut checks of $300 per taxpayer as a direct stimulus. Now HB358 appears poised to make the change that real estate agents have been seeking for years.

“As stewards of the American Dream of homeownership, we are excited about the introduction of HB358. This legislation could make that dream a reality for many families throughout the state. Delaware has the highest state-level Realty Transfer Tax in the nation, and while we pride ourselves on being the First State, this is not a ranking that any of us want,” Susan Giove, president of the Delaware Association of Realtors, said in a statement. “The realty transfer tax can become a major obstacle to homeownership because it must be paid in cash at the settlement table in addition to other closing costs. We believe that this legislation will make housing more affordable for all who wish to buy or sell a home and are grateful to all the sponsors for introducing this legislation at a critical time in the current real estate market.”

General Assembly mulls proposal to create Grant-In-Aid committee

From: Townsquare Live

A bill released from the House Administration Committee Wednesday would create a committee to review grants for nonprofit organizations and make recommendations to the Joint Finance Committee.

Grant-In-Aid is an annual appropriation made by the General Assembly to support the activities of non-profit organizations in the state. The funds are intended to provide supplemental resources to service agencies.

Applications for Grant-In-Aid funding are currently reviewed and approved by the Joint Finance Committee, which is also responsible for drafting the state’s operating budget.

The General Assembly also passes a Bond Bill each year. That bill allocates funds for community groups and local organizations to perform capital improvements. Bond Bill funding applications are reviewed and approved by the Capital Improvement (Bond) Committee.

House Substitute 1 for House Bill 93, sponsored by Rep. Ruth Briggs King, R-Georgetown, would create a new committee that mirrors the work of the Bond Committee except it would be responsible for drafting the Grant-In-Aid bill.

“Each year we invest millions of dollars of taxpayer dollars into not-for-profit applicants,” said Rep. Mike Smith, R-Pike Creek, one of the bill’s co-sponsors. “Each year those requests increase and put more and more strain on the Joint Finance Committee to give appropriate review.”

Smith said the result is allocations have become “more subjective than objective.”

This year, the Joint Finance Committee received 380 applications totaling $34 million in Grant-In-Aid requests. Twenty-nine of those organizations are first-time applicants, which require additional review from the committee.

“I just think we can be better stewards of the tax dollars and the services that our state provides,” Smith said. “I think by creating a Grant-In-Aid committee, we’d provide more transparency to our tax dollars and allow things to be more efficient and effective.”

House Majority Leader Rep. Valerie Longhurst said the bill is “actually a good bill – it’s a good government bill.”

“There are so many applications and people don’t have the opportunity to dive into and really understand them and I think that this is a better way of handing out our dollars in our state government,” she said.

Longhurst recalled the House passing a nearly identical bill years ago which passed unanimously in the House but never received a hearing in the Senate.

“It didn’t go anywhere in the Senate for a lot of different reasons,” said House Speaker Pete Schwartzkopf, D-Rehoboth. “There are some people that don’t want to give up their duties.”

Schwartzkopf said he was on the Joint Finance Committee for four years and the Grant-In-Aid bill was always “an afterthought” once the budget was completed.

If made law, members of the committee would receive additional compensation equal to that which members of the Joint Legislative Oversight and Sunset Committee receive.

State representatives and senators in Delaware receive a base annual salary of $45,291. If passed, members of the proposed Grant-In-Aid Committee would earn an additional $3,852 annually. The chairperson and vice-chairperson would receive an additional $4,578 annually.

The committee would be composed of three senators appointed by the president pro tempore and three members of the House appointed by the speaker. At least one senator and one representative would have to belong to the minority party.

Bill to create Inspector General’s Office in Delaware advances out of committee

 From: ABC 47 News 

DOVER, Del.- Delaware is one step closer to having an inspector general’s office, following a bipartisan effort in the legislature to increase accountability and make sure fraud and abuse are caught.

A measure to create an independent office to investigate wrongdoing in state agencies as well as in civil cases passed from the Delaware House administrative committee.

Lawmakers say the office will be free from political influence and help to protect whistleblowers who come forward to keep public officials accountable.

“What we need is a central focal point where people can go and say I witnessed a crime or some wrongdoing you may want to look into,” said bill sponsor John Kowalko.

“When agencies put in less than their best effort that’s when we need this kind of scrutiny and oversight,” he said.

The bill is receiving bipartisan support with republican Rep. Mike Smith voicing his support at the hearing, after introducing a similar piece of legislation. He called passing the vote a matter of restoring public confidence in their government.

“When you look at the differences, we have the commonalities of our good governance transparency and the public trust and for that, I will ask you to push this bill out of committee,” he said.

While the bill is receiving support from both political parties, lawmakers are stressing the importance of the office remaining a political, being an appointed office rather than an elected one, with term limits and a bipartisan approval process for nominees and staffers.

Advocates for open government including Common Cause Delaware say the language will help to make sure any investigations the office conducts are not politically motivated.

“It is vitally important they be appointed rather than elected and for s et term so it can be independent of the political parties and process and we can know it’s an impartial watchdog,” said Common Cause Delaware spokeswoman Claire Snyder-Hall.

Disagreements in the committee centered around the oversight and jurisdiction of the bill, with lawmakers calling into question who would have authority over cases if the IG’s office launched an investigation parallel to other agencies.

Representative Kowalko said he will be meeting with the Delaware AG to make sure the language in the bill affirms the jurisdiction of the IG’s investigators, and keep them independent of any other agency’s chain of command.

“It’s not just independent because it’s not elected or bipartisan it is independent because it has no one influencing the ultimate judgments made by the inspector general the path is cleared for them to do their work,” he said.

US Offshore Wind Jobs are Highly Exaggerated

From: Caesar Rodney Institute

Does Your State Have a Gross Receipts Tax?

From: Tax Foundation

Today’s map looks at which states levy a gross receipts tax, which is often considered one of the most economically damaging taxes. Shifting from state gross receipts taxes would represent a pro-growth change to make tax codes friendlier to businesses and consumers alike, which is especially necessary in an increasingly mobile economy.

Gross receipts taxes are applied to a company’s gross sales, without deductions for a firm’s business expenses, like compensation and cost of goods sold. These taxes are imposed at each stage of the production process, leading to tax pyramiding.

Seven states (Delaware, Nevada, Ohio, Oregon, Tennessee, Texas, and Washington) currently levy gross receipts taxes, while several others, including Pennsylvania, Virginia, and West Virginia, permit local taxes imposed on a gross receipts base. South Carolina converted a local gross receipts tax into a tax on net income (profits) in 2020. Gross receipts taxes gained popularity among states in the 1930s but began to be repealed or struck down as unconstitutional by state courts in the 1970s. Although they have been dismissed for decades as inefficient and unsound policy, they have returned in recent years as states seek to limit revenue volatility and to replace revenue lost by eroding corporate income tax bases.

As the map indicates, states often designate multiple gross receipts rates, typically by industry, to mitigate some of the economic costs associated with these taxes. Businesses and industries with lower profit margins or more stages in the production process—each one taxed separately—are hit harder by gross receipts taxes than are high-margin businesses that are vertically integrated, meaning that more of the work is done in-house (resulting in less exposure to the tax because there are fewer transactions). Differential rates attempt, albeit somewhat crudely, to adjust for these differences on an industry-by-industry basis. Washington’s Business and Occupation Tax has the highest top rate of 3.3 percent, followed by Delaware’s Manufacturers’ and Merchants’ License Tax with a top rate of 1.9914 percent. Ohio and Oregon have flat rates of 0.26 percent and 0.57 percent, respectively.

The tax base and allowable expenditures vary depending on the design of the gross receipts tax. Texas’ Margin Tax allows for a choice of deducting compensation or the cost of goods sold. Nevada allows a firm to deduct 50 percent of its Commerce Tax liability over the previous four quarters from payments for the state’s payroll tax. And Oregon allows a 35 percent deduction for the greater of compensation or cost of goods sold.

Gross receipts taxes impact firms with low profit margins and high production volumes, as the tax does not account for a business’ costs of production as a corporate income tax would. These taxes can be particularly severe for start-ups and entrepreneurs, who typically post losses in early years while still owing gross receipts payments.

These taxes also do not focus on final consumption, as a well-structured sales tax would. They penalize companies that include multiple transactions in their production process, with the tax imposed on each stage of production—called tax pyramiding. Prices rise as these intermediate taxes are shifted onto consumers, impacting those with lower incomes the most.

Gross receipts taxes impose costs on consumers, workers, and shareholders alike. Shifting from these economically damaging taxes can thus be a part of states’ plans for improving their tax codes in an increasingly competitive tax landscape.

The Hottest Job Markets in the Country: What Policies are Driving Americans to These Cities?

From: State Policy Network

In April 2022, The Wall Street Journal released their annual rankings of the best job markets in the country. Top of the list? Not the big cities that may first come to mind. The cities with the hottest job markets are all mid-size, and each is in a different state. They are:

• Austin, Texas
• Nashville, Tennessee
• Raleigh, North Carolina
• Salt Lake City, Utah
• Jacksonville, Florida

What state and local policies are creating jobs and attracting workers to these cities? We sat down with the local policy organization in each of these states to get their take.

Low taxes

As The Wall Street Journal pointed out, Florida, Texas, and Tennessee have no income tax—while North Carolina and Utah have an income tax rate of below five percent. A state with no income tax means people get to keep more of what they earn—an attractive policy for workers that also spurs economic growth.

The Beacon Center of Tennessee, Joh Locke Foundation (North Carolina), Libertas Institute (Utah), Texas Public Policy Foundation, and The James Madison Institute (Florida)—which are based in (or close by) the cities with the hottest job markets—pointed to their state’s income tax policy as one of the main reasons why those cities have seen such enormous job growth in the past few years.

And some of those state think tanks played a role in helping their state reduce or eliminate the income tax. In 2017, through a comprehensive campaign, the Beacon Center helped Tennessee become truly income tax free. In June 2021, the John Locke Foundation played a key role in North Carolina reducing its income tax rate from 5.25 percent to 4.99 percent.

It’s not just their income tax policy that leads to more job opportunities. Low taxes overall are also a key driver of job growth. Overall, the cities with the best job markets have a low tax burden.

Beacon Center’s Director of Policy and Research, Ron Shultis, observed: “Every year, thousands of people across the United States move to Tennessee. While their reasons may vary, many choose to live here due to state-level policies such as the lack of a state income tax, low taxes per capita, and low levels of debt.”

Dr. Robert McClure, president and CEO of The James Madison Institute, added: “Florida boasts responsible fiscal policies, great infrastructure, a reasonable regulatory load, and no state income tax.”

In their 2022 report, “Rich States, Poor States,” the American Legislative Exchange Council noted: “Generally speaking, states that spend less—especially on income transfer programs—and states that tax less—particularly on productive activities such as working or investing—experience higher growth rates than states that tax and spend more.”

Minimal regulations

Small businesses provide jobs for the people in their community. However, burdensome regulations make it hard for business owners and entrepreneurs to open and run a business. States that understand the plight of business owners and work to make it as easy as possible for them to run a business see more growth than states with more regulations. Austin, Nashville, Raleigh, Salt Lake City, and Jacksonville are all located in states with relatively minimal regulations.

These low regulations attract out-of-state businesses and are a big reason why so many companies are relocating to these five cities. Tesla, Space X, Oracle, and Hewlett Packard Enterprise have all moved from California to Texas. Tennessee has seen a similar pattern, with 25 California companies moving to the Volunteer State from 2018 to 2021. Those businesses bring thousands of job opportunities along with them.

The Texas Public Policy Foundation added: “It is no secret that pro-growth policies — low taxes and a light regulatory burden—have propelled population growth in Texas and Florida while the opposite has occurred in California, Illinois, and New York. Elected officials’ response to COVID-19 likely accelerated this trend in 2020, with Florida and Texas netting more than half of the nation’s 1.15 million population increase from mid-2019 to mid-2020.

In Utah, an innovative policy called a regulatory sandbox is attracting entrepreneurs and workers from all over the country. A regulatory sandbox is a legal classification that creates a space where participating businesses won’t be subject to onerous regulations—usually for a limited amount of time.

Pioneered by the Libertas Institute, Utah was the first state to pass an all-inclusive regulatory sandbox in 2021. Sandboxes allow new businesses to develop more easily—which can create jobs and opportunities for communities.

A regulatory sandbox is just one example of a Utah policy that is contributing to job growth in Salt Lake City and beyond. Connor Boyack, the CEO of the Libertas Institute, added:

“While Utah typically ranks well for having a low overall tax burden, good fiscal management, and low business regulations compared to most states, the state is particularly attractive to families who want friendly neighbors, and outdoor playground for all seasons, and a good place to raise their children. Salt Lake City and our surrounding communities boast a very low unemployment rate with high-paying jobs in an environment that supports entrepreneurship and attracts significant capital investment. For anyone looking to prosper, Utah is a great place to be.”

Ample housing supply

An affordable home is becoming out of reach for many middle class and lower income families. To address this problem, many states, including Florida, North Carolina, Tennessee, Texas, and Utah, are adopting housing reforms that increase housing supply and lower costs.

Brooke Medina, vice president of communications at the John Locke Foundation in Raleigh, noted:

“Affordability and opportunity make Raleigh one of the hottest cities in the country. The research, tech, and economic clout Raleigh boasts stem from an extensive talent pool and pro-growth policies that Locke has championed, such as reducing the corporate and personal income tax, creating a regulatory sandbox, a K-12 education environment that is teeming with innovations, and efforts to ensure the housing supply keeps up with population growth. For these reasons, and more, Raleigh is increasingly recognized as a place where individuals, families, and businesses can thrive.”

Logan Padgett, vice president of communications and government affairs at The James Madison Institute in Jacksonville, added:

“Jacksonville is like many of Florida’s major metropolitan areas—booming. More than 800 people a day move to the sunshine state and as south Florida becomes more congested, Jacksonville’s culture, climate, and proximity as a beach city make it extraordinarily attractive as a destination. In addition, it’s size in land mass makes it more amenable to growth.”

Right-to-work state

Another thing Austin, Nashville, Raleigh, Salt Lake City, and Jacksonville have in common? They are all located in right-to-work states.

Right-to-work laws state no person should have to join a union or pay union dues in order to have or keep a job. If a person wants to join a union, they can; right-to-work just ensures they have the freedom to choose for themselves. Twenty-seven states have right-to-work laws on the books. Studies show that right-to-work states attract more new businesses than non-right-to-work states. In addition, workers in right-to-work states enjoy higher incomes than workers in non-right-to-work states.

Ron Shultis, Beacon’s director of policy and research, added: “Right-to-work is one of the reasons—even if you didn’t understand or know what it is—why those people moved here [Tennessee]. It’s what creates the environment for you to be able to get that job, a good house, a lower cost of living. It’s what makes Tennessee attractive for people and businesses.”

Other states can learn from these cities driving job growth and opportunity

The cities with the hottest job markets all have policies that encourage innovation, reduce regulations, and incentivize work. These policies can serve as a model for other states looking to attract more jobs and opportunities to their state.