Wednesday, July 10, 2013

You will be paying more to go to college. That ensures Oil companies get subsidies.

   OK, just to clear up the title, it's not a direct movement of your student loan dollars to oil companies.  There's more than enough money in the loan profits to pay for that.  

   Big goings on today in student loans.  Political Gridlock has led to a doubling of student loan rates from 3.4% to 6.8%, as reported HERE in the LA Times.  Basically, Obama wants a plan that has  loan rates for "needy" about 2% lower than non-needy students.  His plan is keyed to the prime rate, ensuring the continued profitability of the loan program. 

  House Republicans want a program that is also keyed to the prime rate, but makes no distinction between needy borrowers, and non-needy borrowers.  The plan also runs the risk of ballooning rates, as there are no guarantees for borrowers that the rates will stay the same.  

  House and Senate Democrats want a program in place that provides caps on the top rate.  The details of the varied plans can be found in Mother Jones, HERE.  A liberal rag, no doubt, but there are some nifty charts.

   Interestingly, as mentioned in the Mother Jones article, and detailed in the LA Times HERE, Elizabeth Warren proposes tying the interest rates given to need based student loans to the Federal Discount rate, which is the rate the government loans Banks.  Obviously, there are compelling reasons to make very low interest rate loans to banks (It's the economy, stupid), but something something the children are the future.   That looks like the 'libural' plan, as it probably would result in some reduction in government profits on loan interest.

   The stop gap plan (that failed) would have kept the current rates at 3.4% for another year, so that the rates wouldn't go up while the issue is dealt with.

   That's the summary for now.  OK, now onto the 'OH REALLY' part of the extravaganza.

1) The government MAKES money on the 3.4% rate.  Plenty.  Like Scrooge McDuck plenty.  50 billion in 2012 alone, as reported in USA today HERE.  50 Billion!? OH REALLY.

2) See 1, Above. OH REALLY.

It doesn't seem like we need to presumably double the profit.  It's not clear why we need more profit at all on loans, to students. Or it didn't until I found this ARTICLE, from the Atlantic.  I've reprinted the big numbers below, but basically our government  spent $37 billion on such things as paying oil companies to explore for oil, paying them for they oil they took out of the ground... OH REALLY?  SERIOUSLY?  You, dear reader, get the idea.  Just read on.  It's just way too depressing.

Here are the numbers on the oil subsidies.  Oh PS, in case you didn't know, the oil companies made a profit last year.  A pretty good one.

From the Atlantic (link above).
·  Expensing Intangible Drilling Costs ($13.9 billion): Since 1913, this tax break has let oil companies write off some costs of exploring for oil and creating new wells. When it was created, drilling meant taking a gamble on what was below the earth without high-tech geological tools. But software-led advances in seismic analysis and drilling techniques have cut that risk down.

·  Deducting percentage depletion for oil and natural gas wells ($11.5 billion): Since 1926, this has given oil companies a tax breaks based on the amount of oil extracted from its wells. The logic is, if manufacturers get a break for the cost of aging machinery, drillers can deduct the cost of their aging resources. (You decide for yourself whether that makes any sense.) Since 1975, it's only available to "independent oil producers," not the big oil companies, like Exxon and BP. But many of these smaller companies aren't actually small. According to Oil Change International, independents made up 86 of the top 100 oil companies by reserves. Those 86 had a median market cap of more than $2 billion. So essentially, this is a tax break that subsidizes the Very Big oil companies at the expense of the Very Biggest.* 

·  The domestic manufacturing deduction for oil and natural gas companies ($11.6 billion): In 2004, as American manufacturing was being ravaged by China's entrance on the global scene, Congress passed legislation designed to encourage companies to keep factories operating in the U.S. Thanks to some intensive lobbying, the oil industry ended up as one of the beneficiaries. But while the refining process does involve high-tech manufacturing, there was never any danger that either drilling or refining was going to migrate overseas.