Speaking in Nashua, New Hampshire on March 1, President Obama addressed the current increase in gas prices. He noted that total energy imported had declined from 60% a decade ago to 50% this year.

However, because of potential conflict in the Middle East there has been a substantial increase in the price of gas during the past three months.

President Obama noted, "Over the long-term, the biggest reason oil prices will rise is growing demand in countries like China, India and Brazil. Just think - in five years, the number of cars on the road in China more than tripled." The President indicated that 10 million new vehicles were sold in one year in China. With an increased number of vehicles purchased by the new middle class in China, India and Brazil, there is a substantially growing need for more oil in world markets.

The President also noted that the White House and Congress plan to increase mileage standards. The proposed standards for 2025 include an increase in required average mileage to 55 miles per gallon. If the typical automobile reaches this standard, it will save two million barrels of oil per day and hopefully limit increases in gas prices.

The President also suggested that it is now time for energy companies to pay higher taxes. He noted that the energy companies receive deductions that save approximately $4 billion per year. The White House budget proposal asks "Congress to eliminate this oil industry giveaway right away."

Karen Harbert, President of the U.S. Chamber of Commerce Institute for 21st Century Energy, responded to the President and to comments by Senate Majority Leader Harry Reid. Both indicate that they plan to raise taxes on oil and gas companies. Harbert stated, "Raising taxes on oil and gas is good news for America's foreign competitors and bad news for America's families and businesses." She quoted a consulting study that suggested the increased taxes on oil and gas companies will "cost America 170,000 jobs and result in a 14% decrease in energy production."

In her view, a better solution is to open up some of the available "95% of onshore and offshore lands" for oil exploration and to approve the Keystone XL Pipeline.

Editor's Note: Your editor and this organization take no specific position on these comments. Because energy and gasoline are a very important issue for Americans, this explanation is offered as a service to our readers.

Reducing Rates by Reducing Deductions

On March 1, the Senate Budget Committee held a hearing on options for major tax reform. Senate Budget Committee Chair Kent Conrad reviewed the current White House budget proposals. The White House budget proposes $1.5 trillion in tax increases over the next decade. Individual tax rates would be increased to a top rate of 39.6%. The estate exemption is reduced from $5.12 million to $3.5 million. Higher-income taxpayers in the 39.6% bracket would have itemized deduction tax savings limited to 28%. Finally, the White House proposes a corporate rate of 28% with reduced depreciation and other deductions.

Sen. Conrad outlined three major aspects of any comprehensive budget solution. First, there will be a reduction in discretionary spending. Second, Medicare, Medicaid and Social Security must be reformed. Third, there will be comprehensive individual and corporate tax reform.

Conrad called the current tax code "simply indefensible." In his view, "It is completely out of date."

He observed that the tax code now only raises funds equal to 15% of the gross domestic product, the lowest percent of the economy paid in Federal taxes in 60 years. In order to balance the budget, Conrad states it will be necessary to have tax revenue that equals "19.5% to 20.6%" of gross domestic product.

Conrad believes that "scaling back tax expenditures should be at the heart of any tax reform." The total for tax expenditures, including preferences, credits and deductions, was $1.2 trillion in 2011.

Sen. Pat Toomey (R-PA) is one of the senior Republican members of the Budget Committee. He noted that there is a general agreement on "the virtue of broadening the base and lowering the rates as a fundamental dynamic of tax reform." However, Toomey questioned the White House strategy because the direction for corporate rates is consistent with broadening the base and lowering the rate, but the White House hopes to increase individual tax rates.

Editor's Note: Many Senators and Representatives favor the concept of base broadening. However, for individual taxes this necessarily will require a reduction in the tax savings from deductions for mortgage interest, state taxes, medical expenses and charitable gifts. For the corporate tax system, there will need to be much more restrictive rules on depreciation and many credits. While the tax bill now being discussed for the November session following the election will probably apply for just one year. There is likely to be an effort for comprehensive tax reform in 2013.