Posted on 08/11/2008 5:48:49 PM PDT by Delacon
It has become popular for politicians to advocate going after oil companies for their seemingly outsized profits. Otherwise rational people turn red-faced with anger when they think about the tens of billions of dollars flowing into the coffers of “big oil.”
The most often talked about “solution” to—really punishment of—big oil’s big profits is the imposition of a “windfall profits” tax. Such a tax would set an arbitrary limit to what oil companies can make and then slap an extra tax on profits if they exceed that limit.
Now set aside the question of whether it makes sense for politicians to determine what profits companies should earn; a belief that politicians should be the arbiters of economic rewards seems to be a continually recurring idiocy that we will have to fight indefinitely.
Also set aside the fact that oil company profits are actually much more modest than the profits in other industries, including agriculture which has seen its profits recently skyrocket faster than oil companies have. Nobody is calling for confiscating farmers’ profits, which are bolstered substantially by agriculture subsidies and mandates that would make oil company executives blush if they we offered similar treatment.
Instead, let’s just examine the immediate and discernable results from the imposition of such a tax. What, exactly, would happen in the oil markets if Washington decided to impose a windfall profits tax on oil companies?
Where is the big money in the oil business? The profit margin on refining oil into gasoline and other oil products has actually narrowed by almost 50%--because the high price of oil and a decline in gasoline consumption has made refining less profitable. Ditto for gas stations, which have seen their profit margins decline as the price of gas went up.
The fact is that the spike in oil companies’ profits comes from selling the oil that they own and pump out of the ground. And increasing taxes on pumping oil will do one thing and one thing only: make it less attractive to pump that oil. A windfall profits tax would reduce the oil production of American companies(as it did last time we imposed a windfall profits tax on oil)--and guess who would pick up the slack?
Only a small fraction of the oil on the market is actually owned by “big oil.” Most of the rest—about 90%--is actually in the hands of governments such as Saudi Arabia, Iran, Russia, and Venezuela. And if you haven’t thought of it, none of those governments or non-American oil producers would have to pay that “windfall profits” tax.
So a windfall profits tax would guarantee one thing: Americans would be put in the unenviable position of sending even more of their hard-earned dollars overseas to mostly unfriendly governments to buy oil that could have been produced by American companies.
Driving American production down would also mean that the price of oil would go up. A windfall profits tax, in other words, would make for a nice windfall profit for all those unfriendly governments that currently own most of the market for oil anyway.
As you can see, even if you think that a “windfall profits” tax would somehow be fair or is economically justifiable, imposing it would still be profoundly stupid. All we would be doing is handing over more money and more power to foreigners who don’t like us very much.
ping
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I’ve always found it interesting that the government, an organization that steals its income by threat of imprisonment and still can’t break even, always wants to go after companies that earn their income by providing services people want, and turn a healthy profit to boot.
“Progressives” don’t seem to grasp that a positive market condition is not a windfall. A windfall is when one obtains something they had nothing to do with the production of....the taxes the government collects on a strong oil market, for instance.
Well said.
BUMP!!!!!!!!!
All very true. However, I think it’s interesting that a Republican governor (who I happen to kind of like)in a Republican state has decided to go for a windfall profits tax on the oil companies.
None other than Governor Sarah Palin and the state of Alaska. It will be interesting to see how it plays out up there.
I’m not in favor of punishing successful businesses, but it seems to me we’ve been giving certain tax breaks to the oil companies specifically (supposedly?) to give them the incentive and dollars to invest in new technologies and drilling. Unfortunately, it seems that those tax breaks have NOT been used as intended, they’ve just been passed on to shareholders. There are a lot of leases out there that haven’t even been explored yet.
I think we need to re-think these ‘incentives’. Maybe instead of upfront ‘incentives’, we should offer write-offs when the companies offer proof that they’ve actually invested dollars in new technologies or drilling.
Also bear in mind this one truism: there are no fees, fines, or taxes on business in economy. There is only one type of forced payment: a consumer tax.
Any regulatory fee, fine, or tax the government imposes upon a business, that business will retrieve by increasing the size of their goods and services.
So, enjoy the windfall profits ‘tax’ while it lasts. It’s only a temporary loan at a very high interest rate that each of us must repay.
size = price
“progressives don’t seem to grasp that a positive market condition is not a windfall.”
oh yes they do.
they are duplicitous in their objectives and they know it’s not windfall profit and they know they can convince the electorate that it is when it isn’t.
they’re setting up the industry for nationalization and a windfall for liberal/communist/socialist/progressive politicians to make themselves financially secure and to coalesce their power.
I"m afraid you're right...at least the party elites...the rank and file seem pretty oblivious.
“the rank and file seem pretty oblivious.”
seems that some of the rank and file want the democrats to nationalize the oil companies; new source of income for social programs.
My question to them would be, the politicians, democrats in particular, have run up an incredible national deficit...what sort of amazing expertise in running oil industries do they believe the politicians have that leads them to believe they will do better than those who actually know the oil industry? That central control of industry really worked well for the Soviet Union.
I’m going to ask this, as I was asked from a liberal on another board. Is it O.K. for the oil companies to get massive profits and massive subsidies at the same time? I’d say no. I don’t mind a company getting all the profit they can. But, with that said, shouldn’t their subsidies be trimmed?
Paul
“what sort of amazing expertise in running oil industries do they believe the politicians have that leads them to believe they will do better than those who actually know the oil industry?”
liberals are absolutely brilliant. they know everything by just looking at something. they have god-like intellects that are very special. (they confiscate industries and then coerce others who know what they’re doing to run them.)
What massive subsidies do you claim they get? What I see is massive tax payments.
ExxonMobil 2007
Revenue $404.6 Billion
Profit $40.6 Billion (10.0%)
Taxes $102.5 Billion (25.3%)
Sales-Based taxes $31.728B
Other taxes and duties $40.953B
Income taxes $29.864B
2007 Financial & Operating Review
http://www.exxonmobil.com/corporate/files/news_pub_fo_2007.pdf
Page 16
- - - - - - - - -
ConocoPhillips 2007
Revenue $194.5 Billion
Profit $11.9 Billion (6.1%)
Taxes $30.4 Billion (15.6%)
Taxes other than income taxes $18.990B
Income taxes $11.891B
2007 Annual Report
http://www.conocophillips.com/NR/rdonlyres/3838234F-F20C-4BCE-AE8D-78DE29D67455/0/07RevisedARfinal.pdf
Page 60
- - - - - - - - -
Chevron 2007
Revenue $220.9 Billion
Profit $18.7 Billion (8.5%)
Taxes $35.7 Billion (16.2%)
Taxes other than income taxes $22.266B
Income taxes $13.479B
2007 Annual Report Supplement
http://media.corporate-ir.net/media_files/irol/13/130102/reports/CVX_ARsupp07.pdf
Page 3
- - - - - - - - -
Marathon 2007
Revenue $62.8 Billion
Profit $4.0 Billion (6.3%)
Taxes $8.5 Billion (13.5%)
Consumer excise taxes $5.163B
Other taxes $0.394B
Income taxes $2.901B
2007 Annual Report
http://www.marathon.com/content/documents/investor_center/annual_reports/annual_report_2007_book.pdf
Page F-4
So, you’re saying we’re NOT giving money to the oil companies to drill and explore certain areas?
Yes, they’re paying a lot of taxes. But, they’re also getting a lot of money. Nowhere near what they’re paying.
I’d say let’s cut out their subsidies, and then we don’t have the government meddling in that. We can cut their tax amount by the same amount. Less taxation is always a good thing. Less government largesse is also always a good thing.
Paul
No, we charge them money to drill and explore.
Oil and Gas Lease Sales in Gulf of Mexico Attract $3.7 Billion
http://www.gomr.mms.gov/homepg/whatsnew/newsreal/2008/080319.pdf
http://www.blm.gov/wy/st/en/info/news_room/2008/08/05ogsale-results.html
I’d say let’s cut out their subsidies
What subsidies?
O.K.
Given the comments on the other side of the aisle, I was led to believe (actually slammed for not accepting the premise of) that there were certain tax-based incentives/giveaways that were being given to the oil companies to offset the losses they were incurring from the times when oil was in the $8-10 a barrel range.
I believe that if that is the case, then we should cut out the give-aways, and replace them with reductions in taxes. Frankly, that will cut the legs out from under our liberal lying adversaries.
If you are correct and they’re not giving any subsidies, then great. Let McCain propose that any subsidies that can be shown to benefit the Oil companies be cut. That would slice the legs out from Obambi and his allies.
Anything we can do to show the Liberals are Liars.
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