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Column: Real Costs Of Oil Rebates

This story was written by Holly Foxen Wells, The Daily Aztec

Sen. Barack Obama wants to give you a $1,000 energy rebate check. He wants to finance this rebate from a tax on record oil company profits. Obama says that this consumer energy rebate "will be enough to offset the increased cost of gas for a working family over the next four months."

This sounds like a good idea, unless you actually paid attention in Econ 101: Oil is an extremely price-sensitive good. A tax increase on this good will lead to an increase in the price it. Any tax imposed on the producer will simply be passed on to the consumer in the form of higher gas prices. The more you tax, the higher the price. Rinse and repeat.

If Obama gives you a $1,000 rebate, you will end up paying more for your gas as a result. So why is he pushing for the rebate if it won't save Americans any money in the end?

The answer is simple: to gain votes. This is particularly hypocritical considering that he spent a good deal of time this summer explaining that other political leaders' proposals to lift the gasoline tax were an ineffective ploy to get votes. Now he's resorting to the same tactics.

Besides, just because oil companies are making record profits does not mean that the government has the right to tax them more. Companies should not be punished for their success. Oil companies are already taxed a great deal, contrary to the portrait the media paints of greedy "Big Oil." For example, Exxon Mobil made $11 billion in profits last year, yet it paid $32 billion in taxes.

But this is about more than just the impending presidential election. The energy rebate goes against the idea of capitalism and free enterprise, principles this country is based on. And it's one of the worst moves we can make if we want the economy to improve, instead of continuing its freefall.

Obama is not the only one proposing ineffective rebates. The tax rebates enacted by a Democratic Congress earlier this year were very shortsighted as well. The idea was that a rebate would stimulate the economy and lead to more production and employment. But this did not carry through to reality. "The rebates added nearly $80 billion to the permanent national debt but less than $20 billion to consumer spending," according to The Wall Street Journal. Government statistics found that only 10 to 20 percent of the rebate dollars were actually spent. The rest were put into personal savings or used to pay debt.

While technically the rebates did induce additional consumer spending, the praise for this slight increase is unwarranted. The increase in spending was very small in comparison to the amount of the total tax rebates. Clearly, rebates do little to stimulate economic activity.

We should be wary anything labeled "rebate" or "relief," or whatever other sneaky titles this bad idea disguises itself with. It will end up costing us in the end.

Altogether, the United States has almost $10 trillion outstanding debt. Giving away frivolous rebates can only ensure an economic collapse. We must stop running up these massive deficits. It is imperative for the economic security of this country.And the first step to doing that is for the government to stop giving money away.