Posted on 03/08/2008 2:49:40 AM PST by ThreePuttinDude
When it comes to public hatred of big business, there’s no better target than oil companies. This hatred has been all the more intense since Exxon Mobil announced last year’s net income at $40.6 billion, the largest-ever profit for a publicly-traded company. With the threat of recession looming, many policymakers have been tempted to pay for relief measures by raising taxes on “Big Oil”—including the House’s recent bill rolling back tax deductions on integrated oil companies (though leaving them in place for other companies). Understandable as this impulse may be, it is a bad idea for average Americans. If the government tries to “do something” about record oil profits, it won’t provide meaningful relief revenue, but will certainly raise the price at the pump.
Part of the reason for giant oil profits is that the industry itself is huge. But viewed in relative terms, oil and gas earnings are less impressive. The industry’s net profit per dollar of revenue was just under 9 cents, compared to 13 cents for the S&P 500, meaning the “markup” for the oil and gas industry is below average.
Granted, total profits reported by these companies will be large, because the industry volume is enormous. But why did the integrated oil majors do so well in 2007? The answer is record oil prices, which are set by supply and demand on the world market. The average price of crude was $72.30 per barrel in 2007, compared to a historical average of $25.95 during the period 1986 – 2006. This explains why not only Exxon Mobil, but most of its competitors, had strong years: Royal Dutch Shell earned $31.3 billion, Chevron earned $18.7 billion, and ConocoPhillips came in with a respectable $11.9 billion annual profit.
So now we’ve pushed back the problem one step, and we have to ask, Why were oil prices so high last year? Perhaps the greedy oil companies colluded to restrict supply, and stick it to the helpless consumers!
The problem with this theory is that the supply of oil is also at an all-time high. The worldwide average number of barrels produced per day was an estimated 84.8 million in 2007, compared to 72.4 million during the period 1986 – 2006. The oil industry responds to high prices just as any other industry does. When the price of a product goes up, companies have the incentive to sell more of it.
High oil prices in recent years are caused not by supply restrictions, but by huge increases in demand. As the economies of places such as China and India boom, they draw oil and other commodities to them. Higher market prices signal the increased scarcity of these resources, causing businesses and consumers around the world to economize more carefully in their usage, whether that means finding alternate production techniques or carpooling to work. At the same time, the high prices give incentives to locate and develop more oil reserves. Given the economic realities, these outcomes are exactly what we want to happen.
Whether or not one views these market forces as benign, jacking up taxes on oil companies will only make things worse. When you raise taxes on an activity, people engage in less of it; that’s the whole point of sin taxes on liquor and cigarettes. But in this case, we’re taxing the companies who produce oil – meaning less production and higher consumer prices.
Raising taxes on the production of oil will reduce its supply, causing oil and gasoline prices to rise even further. They sometimes call it a “windfall” tax, but in truth crude oil doesn’t grow on trees. It can take over a decade and hundreds of millions of dollars of investment to find and prepare an oil field for large-scale production.
Oil companies are already paying exorbitant tax bills. In 2006, the industry paid $81 billion in income taxes, and almost certainly paid more in 2007 as profits were higher. (The industry data for 2007 have not yet been compiled.) Also remember that government forecasts of new tax revenues are usually grossly optimistic, because they ignore the reaction of the target industry. President Reagan ended a Carter-era windfall tax on oil companies that had generated only $80 billion during its lifetime, even though proponents of the tax had anticipated a take of $390 billion.
If politicians are concerned about gas prices, they shouldn’t erect extra hurdles for those companies in the business of finding new supplies of oil. If the government really wants to do something, it can roll back restrictions on offshore and Alaskan drilling. Beyond that, it should just let market prices and the profit motive do their jobs.
A note of disclosure for Townhall’s readers: I have publicly defended oil profits, and opposed new taxes, for years, even back when I was a humble college professor. I want to admit upfront, however, that recently some of my consulting fees have come from nonprofits who are partially funded by energy companies.
Robert Murphy has a Ph.D. in economics and is the author of The Politically Incorrect Guide to Capitalism (Regnery 2007).
The fact your book was published by Regnery, would place it right at the top of my “must-have” list.
Who needs black helicopters when you control every (though not quite) source of information on the planet.
taxing the companies who produce oil – meaning less production and higher consumer prices.
Raising taxes on the production of oil will reduce its supply, causing oil and gasoline prices to rise even further. They sometimes call it a “windfall” tax, ....... It can take over a decade and hundreds of millions of dollars of investment to find and prepare an oil field for large-scale production.
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Hillary Rodham Chavez Clinton said gas prices would probably go down if she was elected.
the “markup” for the oil and gas industry is below average.
total profits reported by these companies will be large, because the industry volume is enormous.
volume is enormous. volume is enormous. volume is enormous. volume is enormous. volume is enormous. volume is enormous. volume is enormous. volume is enormous. volume is enormous. volume is enormous. volume is enormous. volume is enormous. volume is enormous.
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Democrats could cut the demand in half if they would get their supporters to quit buying and burning gasoline in record amounts. Didn’t Al Gore win the popular vote?
DIGEST THIS:
According to IRS data for 2004, the most recent year available:
Total number of tax returns: 130 million
Number of Tax Returns for the Bottom 50%: 65 million
DIGEST THIS:
Adjusted Gross Income for the Bottom 50%: $922 billion
Total Income Tax Paid by the Bottom 50%: $27.4 billion
Conclusion: In other words, just one corporation (Exxon Mobil) pays as much in taxes ($27 billion) annually as the entire bottom 50% of individual taxpayers paid in 2004 (most recent year available), which is 65,000,000 people! Further, the tax rate for the bottom 50% was only 3% of adjusted gross income ($27.4 billion / $922 billion) in 2004, and the tax rate for Exxon was 41% in 2006 ($67.4 billion in taxable income, $27.9 billion in taxes).
http://mjperry.blogspot.com/2008/02/putting-exxons-tax-bill-in-perspective.html
Individual taxpayers paid Exxon’s taxes. The costs just pass on down to the consumer.
Politicians are stupider than stupid...
The facts are that the government profits more from a gallon of gas than the oil companies do.
Yet oil company profits are “obscene”...
It is our politicians and the moron voters who keep electing them that are obscene.
Yet oil company profits are “obscene”...
It is our politicians and the moron voters who keep electing them that are obscene.
No! No! No! No! No! No! No! No! No!
The oil companies are "sticking it to the folks." They're evil and greedy! They want to take all our money from us! I know that's a fact because Bill O'Reilly told me so! And Hillary! (TM) will be giving me a fair share of their obscene profits! I know that's a fact because Hillary! (TM) told me so!
Mark
Hannity always tries to make DB's point that the taxes are passed to the consumer which is true, but he says "corporations don't pay taxes' , which leaves the impression they've found a way to avoid paying them. Not true. I wish he'd say oil companies pay HUGE taxes but pass it ALL on to us.
Since oil companies are "evil" we therefore can't expand drilling in Alaska or offshore to further benefit evil big oil. BS. If oil stays this high, (a previous post predicts it will not, for long) this oil/ energy/global warming kerfuffle could pop to the front of the campaign debate.
I hate the G-d d@mned insurance companies. I give them money, and get only a vague feeling of being protected in return. If I actually use the product, I am at risk of not being able to buy more, and I WILL be financially penalized by the company for using it. I recoup mere pennies for every dollar I spend on insurance.
I haven't done the financial analysis, but I'd be willing to bet that the margins and ROI of insurance companies are MUCH higher than the oil companies. They also have the free cash flow to buy all the politicians they want to protect their little oligopoly.
Amen to that!
ExxonMobil pays a lot more taxes than that per year.
They paid $97.5 billion in taxes for 2006.
Sales-based taxes - $30.381B
Other taxes and duties - $39.203B
Income taxes - $27.902B
ExxonMobil’s 2006 Financial and Operating Review
http://exxonmobil.com/Corporate/Files/Corporate/fo_2006.pdf
Page 22
In 2007 ExxonMobil paid $105.7 Billion in Taxes.
Income Taxes - $29.9B
Sales Based Taxes - $31.7B
All Other Taxes - $44.1B
http://www.exxonmobil.com/corporate/files/corporate/news_release_earnings4q07.pdf
BUT WELL THEN THAK...
all that liberal spew and swill about big oil being one giant collection of gouging public enemies is just that..... SWILL AND SPEW?
.......fancy that!
so these folks are villifying/biting the very hand that is paying out a boatload of tax money so that we all can keep living the american dream...?
what kind of class warfare b.s. is THAT
does it get any skunkier?....n what party would it be that does this kind of thing?
hummmmm?
point well taken.....kudos
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