The Diesel Barometer

Over the last year, I’ve had many conversations with clients, friends and family about the looming economic storm darkening our shores. Most of those that I talk with really have no idea how we, as a nation, came to the brink of economic disaster. The news media focuses on the mortgage crisis which led to the housing crisis which led to the banking crisis which has led to the automaker crisis. It’s clear that the media looks only at the symptoms of a problem and not the root cause. I’m not an economic expert; but, I saw the storm coming back in 2005. Our crisis started when oil companies and oil-producing nations took advantage of us when Hurricane Katrina struck. Gasoline prices literally went through the roof overnight. Oil companies blamed the price increases on “supply and demand”, disruption of supply and market forces. Considering all of that information, it was hard to understand why oil companies posted record profits in 2005 and 2006; worse yet it was even harder to have sympathy for these companies even though they claimed that they needed to reinvest in new energy research and technology. Were they not “reinvesting“ before the hurricane? I am still amazed that we didn’t storm the gates of their corporate offices with torches and pitchforks.

All of this aside, petroleum touches every part of every person’s life in this country. Think about that for a moment. There is no part of our life that doesn’t involve oil. Drive to work in the morning. Go to the grocery store. Take the kids to soccer practice. Turn up the thermostat in the morning. Make a pot of coffee. Have lunch at a local diner. Go to a movie. It all takes oil. If you didn’t burn that gas in your car to get there, then some trucking company or FedEx or the postal service burned some type of fuel to get the product or service to the marketplace. Nothing and no one are sparred. Petroleum rules our lives.

All I know about modern economics I learned while I was in college or watching the evening news and reading on the internet. There are many measures and methods to quantify the relative health of the economy. The federal government publishes an array of indices to benchmark the economy such as Gross Domestic Product (GDP), Gross National Product (GNP), Real Gross Private Domestic Investment and Status of the Labor Force just to name a few. If you find yourself with a particularly bad case of the insomnia some night, I have an excellent cure. I assure you that one-half hour of reading at http://www.gpoaccess.gov should put you to sleep straight away.

After multiple conversations with my soon-to-be-wife (aka; finance`) attempting to explain why my observations into the future of the economy are so much more insightful than Ben Bernake and Secretary Paulson, I had an epiphany. It came to me while I was pumping gas. None of the “leading indicators” mean anything to the average American. It’s all too complicated and too boring to connect the dots between the indicators to our individual lives. We all understand the price of gasoline at least once a week when we fill up our tanks. I see it perhaps a dozen times a day now that we have gas stations with the bright LED signs. The price of diesel fuel is a leading economic indicator we can all understand.

While the price of diesel doesn’t indicate all that is wrong with our economy, it does indicate quite a bit. As the price of diesel increases, the price of just about everything increases. Groceries, gas, heating oil, bread, postage, rent, airfares, cab fares, clothing, movie tickets, a meal in a restaurant, property taxes are all affected. It simply costs more to deliver goods and services to the marketplace. I can’t think of anything in my daily life that isn’t affected by the price of diesel (the first cousin of #2 heating oil and K-1). All this caused me to think about how I could conserve and reduce my usage of oil. I am actively seeking carpooling opportunities from my rural home to my office in Brewer, Maine. I plan to cyber-commute to the office as much as I am able. I have also installed two wood burning stoves in our home to burn wood that we’ve selectively harvested from our land. What would energy conservation be without a discussion on insulation? I’m insulating the sills in our cellar to discourage heat loss and make it a more tolerable place for teenagers. I like to keep them in the cellar until they are 18 years old as they tend to ruin the carpets and furniture. The upside of insulation is the energy tax credit. Keep your receipts and visit http://www.irs.gov/newsroom/article/0,,id=154657,00.html for more information. Just because we are basking in the glory of gas prices below $2.00 a gallon, we shouldn’t lose our national resolve to break the grip of petroleum on the economy. I’ve listed some websites that I think have helpful ideas for energy conservation:

http://greentopics.blogspot.com/2006/06/top-10-ways-to-save-oil-and-gas-use_27.html

http://ecomall.com/greenshopping/20things.htm

http://www.nrdc.org/air/energy/genergy/simple.asp

The next time you drive by a gas station think about the barometric pressure of the economy. Happy driving.

Thomas Hicks is a Certified Public Accountant working in Brewer, Maine. For more information or to contact Tom, click here.

Obama vs. Spiderman

What do Barrack Obama and Spiderman have in common? Swinging from building to building in pursuit of super criminals? Leathery webs from the wrist? It's not anything super-human it turns out. I was listening to NPR tonight on my 40 mile commute to my home. The Day-to-Day program reported that our President-Elect is an avid collector of Spiderman and Conan the Barbarian comic books. Should we gain any insight from this about the man that is about to become the leader of our country? It doesn't say anything to me other than he likes comic books. It does make me think about taxes. Surprised that a tax accountant thinks about taxes or are you puzzled about what connects Obama, Spiderman and taxes?

The connection is much more simple than you think. It doesn't matter who you are; when a presidential election comes around we all wonder about what the future brings for our country but more importantly how it affects us personally. I've fielded many calls from clients in a state of panic about a sound bite they heard on the evening news where Obama or McCain spoke of a new direction for taxation of the middle class or "re-distribution of wealth". "What will Obama's plan do to my taxes?" they exclaim "What can I do now?" they cry. Here is my short answer: nothing & nothing. Surprised? Allow me to explain. I have 25 years experience as a CPA. In that vast expanse of time, I have yet to see any real, meaningful tax reform. Sure, we hear from our elected officials from time to time and always in times of crisis with promises about "moving the country forward" and bringing relief to the American family; but we really only get words and promises that lack substance and sincerity. In short, our elected officials tell us what we want to hear (can you blame them? The job is pretty "cushy"; they like the paycheck and the best health insurance in the world). After we hear what we want to hear, we go back the daily grind we call life and work to pay our taxes. The fact is that the President has very little power to change anything in this country. Congress is mostly responsible for what happens in this country not the President.

Let's not sleep comfortably tonight under the blanket of trust that Congress has their hands on the wheel while we slumber; because they don't. If the President doesn't direct the country and Congress doesn't steer, then who does? Answer: Special Interest Groups. Don't worry or lose any sleep now that you know this. You've been living like this for this long so why change.

Here is an undeniable truth: Under the US Tax Code, the rich get richer, the middle-class pay taxes and the poor get entitlements.

That's the way it works, sorry. So what does all this mean Father Tom? It's simple. The tax code is not like to change any time soon. The President elect will be busy building a cabinet, sharpening the pencils in his desk caddy and asking directions to the restroom and the water cooler. Making any drastic changes to the tax code will be low on his priority list. Even if he wanted change the way we are taxed, he needs the consent of Congress. Congress is unlikely to do anything unpopular like raising taxes (as a depression approaches) as that sort of thing tends to hurt re-election prospects. Don't despair; all is not lost. If you want to be proactive about your taxes and learn about the many opportunities you can exploit in the code, visit me at: www.jthicksandcompany.com