Taxing to Better Mileage?

There I was, surrounded by thousands of barrels of Kentucky’s finest — seemingly, enough bourbon to get every of-age taxpayer in the U.S. a little tipsy. By any stretch of the imagination, this place was paradise. Rolling hills as far as you could see and the air was thick with the smell of the latest batch. But even this paradise, hidden well in the confines of the Kentucky Bourbon Trail, was prey to Uncle Sam’s grubby little hands.

You see, on my recent trip to Kentucky’s Bourbon Trail, one thing stuck in my mind: TAXES. I was utterly shocked when I heard what the distillery tour guide was saying about a $13.50 per gallon tax on any distilled bourbon. That’s over $700 of taxes per barrel. And that’s before the bourbon even gets to the bottle. For me and you, fellow Whiskey Shooter, there’s another tax when we get to the counter—somewhere around 6%.

So what’s the total bourbon tax?

According to the Kentucky Distillers’ Association, around 53% of the cost of the average-priced bottle goes to local, state, and government taxes.

I guess that’s why the tour guide took the time to tell us about the taxes. That way we wouldn’t be bitter when we paid $30 for a bottle of “corn juice.”

So the tour went on and our group wandered through the rest of the distillery — tasting the freshly distilled 160 proof grain alcohol, feeling the corn mash and playing in the gift shop…

But wait. Isn’t this taxation that same kind that created rebellions?

My tour group, and Americans in general, have been lulled to sleep, as if Uncle Sam slipped us a Mickey. Last I checked, the U.S. isn’t an alcohol supplier. Nor is it a real estate agent. Nor is it a car lot. But it seems like the current administration wants to get its hands on everything.

And the way things are going, who knows what’s next…

The Latest Nickel-and-Dime “Tax”

You gotta give it to ’em: At least Washington came up with an appropriate nickname for its latest cash grenade. It’s called “cash for clunkers,” and last week the House approved the bill — with your money!

It simply amazes me that something this poorly thought up could pass so quickly through the largest legislative body in the U.S. Just think about it: 435 well-paid pairs of eyes took a look at this bill. And a majority OK’d it!

In case you haven’t heard of the latest clunker of a bill, let me give you the rundown…

It’s a $4 billion plan to subsidize sales of new cars with better mpg. Essentially, if you have a car that gets less than 18 miles per gallon and you “upgrade” to a new car that gets at least four more miles per gallon, you’re eligible for at least a $3,500 tax credit.

I love the well-accepted term “tax credit.” Does everyone on the Hill think we’re that easily swayed by bills that contain such positive-sounding phrasing?

Here at the Whiskey Bar, we aren’t that easily fooled. This “tax credit” is a simple euphemism for free money — money that you and I as U.S. taxpayers are providing. Simply put, it’s taking money from our pockets and giving it to new car buyers in an effort to jump-start new car sales.

I don’t know about you, but paying for my neighbor’s car wasn’t on my agenda today.

But let’s dig a little deeper, since we could be footing the bill…

The bill, as it stands, is less likely to be affecting normal car owners — so this is for our SUV/truck-driving neighbor. Because even if you bought a 1990 Chevy Cavalier or Ford Taurus, you’re still probably getting well above 18 mpg.

So obviously, this bill is almost strictly for those non-Peak Oil-thinking, overzealous SUV or truck buyers. These folks have roughly the same restraint and foresight as those who purchased houses that they couldn’t afford.

This bill is almost comical. But frankly, where does the spending stop on Capitol Hill? Combine this with the latest auto bailouts and it’s really starting to look like our nation has turned into a new and used car lot.

Things are getting scary ’round these parts.

Government Spends, You Save…

Those dollars in your pocket aren’t looking as great as they once did. And as I see it, with an overburdened and overspending government, the dollar could be in for a crude awakening.

That’s because one thing is for sure: Over the next few years, the world is going to spin, the U.S. government is going to spend, and all of this will be running on the same fuel: oil.

As I wrote a few months back, the price of gasoline is going to rise. And that mainly stems from the rising price of crude oil.

As you know, the world’s commodities (most notably oil) are priced in U.S. dollars. As the dollar weakens, and as the Earth still spins and demands more energy, the price of oil is going to rise.

In my opinion, over the next three months to five years, oil is going to rocket — even more so than the price of gold. We got a taste of what can happen when oil spiked last year to $147 per barrel. And from my standpoint, it’s inevitably going to be back to those levels, or higher.

My best advice for protecting your hard-earned dollars over the next five years is simply to invest in all facets of the oil industry: oil service companies, oil holding companies, oil technology companies, and the commodity itself (through ETFs or commodity options).

Sure, the Obama administration wants to improve mpg, but one thing is for sure: We’re still going to be burning oil for decades to come — more and more every year. And although we may hit some rough patches for demand, the overall trend line is going to be UP.

By investing in oil, you’ll protect your wealth and profit at the same time.

After all, we all want to be able to afford our next bottle of bourbon.

Stay ahead of the curve,
Matt Insley

June 17, 2009

The Daily Reckoning