Best and worst states

Chief Executive, The, April-May, 2008

New Jersey [rank 47, Best and Worst States to Do Business, Chief Executive Jan.-Feb. 2008] unfortunately is not good for manufacturing.

We are a small company, our corporate taxes have increased 400 percent in the last five years, and we are being taxed for several little things on a separate basis, like a fire record-keeping tax--which makes no sense and should be paid for by the general corporate tax fund. The reason North Carolina is so good for business is its appreciation for the little guy and its ability to get many people working to attract business for its state. I once stopped for fuel at one of its airports where everyone, including the line service guy, tried to sell me on moving my company to North Carolina.

Bob Campbell

Atlantic International Technologies

Rockaway, NJ

Robert Kuhn's "Delivering Energy Security" (Chief Executive, Jan-Feb 2008) did not meet the factual or logical standards that readers should expect from a magazine for CEOs. America is dependent on oil, and many other developed countries are as well, because of the structure of our economy; low population density; the high value placed on home ownership and mobility; and economic and population growth. The oil "problem" is primarily a transportation issue. Transporting goods by rail, road and air over our large land area requires large quantities of oil-based fuels. Citizens who don't have easy access to public transportation use gasoline to get to and from work, and gasoline vehicles satisfy our mobility values.

In spite of advances in automotive technology and efficiency, total miles driven continue to increase, according to the Energy Information Administration. Alternatives to conventional gasoline- powered vehicles are more expensive and plug-in hybrids are not close to being commercially viable.

The article advocates a substantial increase in the gasoline tax, mandated efficiency standards, tax increases and larger public spending. In the past year, the price of gasoline has increased almost 80 cents per gallon. That should qualify as a substantial increase. There is a rich history going back to the Kennedy tax cuts in the 1960s demonstrating that lower, not higher, taxes increase government revenue. There is also a rich history that government subsidies for alternative energy sources have been a great waste. Further, subsidies transfer taxpayer wealth to companies that are unwilling to invest their own capital. That is telling. Energy intensity, the ratio of energy use per unit of GDP, has dropped significantly and is projected to continue to do so without more government mandates.

Greater government control over the factors of production is not the route to economic or energy security.

Even if the U.S. did not import a drop of oil, we would be impacted by what happens in the Middle East because we are part of a global economy that relies on oil. The best policy to increased energy security is to promote robust economic growth, remove unnecessary barriers to increased domestic energy production, maintain a healthy strategic petroleum reserve and promote tax policies that encourage greater private investment. More about the illusion of energy independence can be found at the energy policy link at Marshall.org.

William O'Keefe

CEO, The George C. Marshall Institute

Washington, D.C.

Robert Lawrence Kuhn replies:

I thank Mr. William O'Keefe for his response. We certainly agree on the seriousness of the problem--America's dependence on foreign oil has become increasingly dangerous--and I appreciate his articulation of some of its causes. I do not disagree with Mr. O'Keefe's incisive prescriptions (although his call for removing "unnecessary barriers to increased domestic energy production" is code for relaxing environmental protections). As an investment banker, I too would rather trust the power of the marketplace, but I have come to the conclusion, reluctantly and sadly, that for this axial issue drastic steps are needed and that the best single step would be for government to levy a higher tax on gasoline (thus targeting oil consumption in transportation).

In the spirit of disclosure and candor, when I first read Mr. O'Keefe's response, and integrated all of his positions, I sensed an ideological agenda. A subsequent scan of Wikipedia suggests that Mr. O'Keefe was an executive at the American Petroleum Institute and is a registered lobbyist for ExxonMobil. If true, these are honorable and needed roles and in no way should they discredit his views or disqualify his participation; indeed Mr. O'Keefe's pro-oil-business bias is a necessary part of a vigorous public debate.

Here's my bias: Reducing American dependence on foreign oil is too important a problem to allow potential solutions to be held captive to preset philosophies (much less sector financial interests). On taxes, one cannot broadly generalize; the economic effectiveness of lower capital gains tax rates does not contradict higher gasoline taxes. To assume that subsidies for alternative energy would go to "companies that are unwilling to invest their own capital" ignores the need to invest in basic research, in university and government labs, which can (on occasion) seed new ideas before even early stage venture capital would care to invest. Basic research, by nature, spawns "great waste;" the vast majority of Thomas Edison's filaments for light bulbs were failures. I do support Mr. O'Keefe's recommendation of tax policies that encourage greater private investment.