The Los Angeles Times editorializes about why Exxon is getting a bad rap for "record profits".
Although crude oil is selling for almost twice as much a barrel as it did a year ago, the company's profit was a mere 14% larger than last year.
API has produced a nifty primer on oil, gasoline, and other energy sources.
Among the interesting graphs: where does each dollar spent on gasoline go (pg 9 in the PDF file); who owns "big oil" (pg. 13); and where does US corn go (pg 26). On the latter, I was suprise not only at the percentage going to fuel alcohol (25%) but how little corn makes it to the dinner table as corn (less than 2% goes into "cereals and other").
Everyone in Pennsylvania (save the Amish, who are also unlikely to be reading this blog) must have heard or seen the Barack Obama, anti-"Big Oil" ad dozens of times (including the Tribune-Review who editorialized on it today). Obama claims that he doesn't take money from oil companies, which is true because no one does. It is illegal for corporations to contribute to political campaigns, though FactCheck.org points out that Obama takes plenty from oil company employees. And as the Tribune-Review rightly points out, Obama's windfall profits tax won't reduce the cost of fuel or make us "energy independent", but would rather increase the price of gasoline and make us more reliant on foreign gasoline producers (we have written more on this issue here). But Obama's frequent citation that he opposes tax cuts for oil companies but supports subsidies for "alternative fuels" is what really needs responding to. The 2005 energy bill did provide some tax credits for oil companies, but according to the CBO report (see page 17), was more than offset by tax increases on refineries. In contrast, the lion's share of tax credits went to "Renewable Energy and Alternative Fuels". In fact, the total taxpayer subsidy for ethanol in the US is estimated to be between $9 and $11 billion dollars. As readers of this blog should be well aware by now, ethanol is bad for air quality, increases the cost of food and gasoline, increases water shortages, won't make us energy independent, and is a bad deal for taxpayers. So which candidate will start denouncing "Big Ethanol"?
Pittsburgh Tribune-Review editorial on the Oil Company Gross Profits Tax.
Philadelphia Daily News compares Rendell to Aragorn (of the Lord of the Rings), in his speech to the SEPTA board: A day may come when the courage of men fails!" Rendell's Aragorn told a startled-looking SEPTA board of directors. "But it is not this day! This day, we fight!"
Don't let them buy you off for 12 pieces of silver!" Rendell said, abandoning "Lord of the Rings" for his own interpretation of Judas' betrayal price, which was actually 30 pieces of silver.So to avoid getting "bought off" by legislators, ask them for more money?
A report from the union-backed, socialist leaning (see note) Pennsylvania Budget & Policy Center calls for enacting the Governor's Proposed Oil Profits Tax, saying it is a good tax because: Asked whether it could be described as a liberal/progressive group, Ward said, "we are not the Commonwealth Foundation."
1) Oil companies have a lot of money, therefore the state should take some, a la Lenin, Mao, and Hugo Chavez.
2) Oil companies have a higher profit to sales rating than Wal-Mart (though retail tends to have low margins, where financial companies have profit margins about 5 times that of oil companies) and have a higher profit to owners' equity rating than Microsoft and Boeing. I'm not sure if that means Exxon and others are undervalued, or whether it is due to Microsoft having no debt and billions in cash reserves while Boeing not being tremendously profitable - but it really has no bearing on the appropriateness of higher taxes.
Of course the neo-Marxists want everyone to believe that the profits, and high gas prices, are because oil companies are greedy. Apparently much greedier than they were 4 years ago, when they weren't so profitable and gas prices were lower. They also seem to get greedy every summer and whenever a pipeline in the Middle East is damaged - when they raise gas prices.
3) The oil company profits tax would be passed on to individuals - but no so much buyers at the pump, or employees, but the rich, evil shareholders. Of course, no mention that oil companies are large parts of many worker's pensions and 401k plans - including being prominent investments in the PSERS plan. In other words, this tax would merely be passed on to school teachers.
4) Oil companies don't invest "enough" in capital, infratstructure, and research on alternative sources - "only" $14 billion in the US alone last year.
5) Oil companies skip out of paying Pennsylvania taxes. The report acknowledges that oil companies pay record taxes on their profits, but claim not enough is paid to Pennylvania's Corporate Net Income Tax.
The report claims that oil companies are practicing creative accounting to avoid taxes in a "high tax state such as Pennsylvania". They estimate based on sales of 4 companies (extended to all oil companies) that oil companies are only paying between 40 to 74% of their "fair share" of a tax they state is high. Yet to justify the Oil Profits Tax, oil companies would have to be paying only 9% of their "fair share." The Oil Profits Tax would generate 11 times the revenue oil companies currenlty on the CNIT, and represents between 4 and 8 times what the report argues oil companies should pay on an already high tax.
Note: In a related story in the Tribune Review Brad Bumsted tries to find an appropriate label for the socialist-leaning Pennsylvania Budget & Policy Center:
You can say that again.
In a news release, Governor Rendell Calls on Bush Administration to Investigate Exorbitant Gas Prices.
Governor Rendell is simply using demagoguery about the "profiteering oil companies" to justify his massive tax increase. He follows it up with recommendations for new government spending and regulations.
In related news, the Commonwealth Foundation Calls on Bush Administration to Investigate Exorbitant State and Local Taxes. As noted in this commentary from last year:
Investor's Business Daily editorial on oil profits:Profits drive discovery and productivity in every industry, but particularly in the capital-intensive energy sector. The seismic and satellite technologies now making it possible to recover far more of an oil field's resources, for instance, have only been available in recent years. And they weren't developed by federal bureaucrats doing Congress' bidding. No, they were made by companies earning profits by serving customers.
When politicians send the taxman or regulator after profits, they do more than take money away from workers, shareholders and customers. They also endanger America's economy and security.
Apparently, neither state Senators (see coverage by KYW NewsRadio) nor state Representatives (story in the Post-Gazette) believe Gov. Rendell has found a magic tax which will only tax evil, greedy oil companies and not affect real people.
Jonathan Williams of the Tax Foundation on Governor Rendell's "Oil Profits Tax" in Sunday's Patriot News.
Tax Foundation Audio on Governor Rendell's proposed oil profits tax (from KDKA, Pittsburgh).
US News and World Report answers: No:
"Today's earnings are tomorrow's investments, both in exploiting hard-to-reach oil reserves and in alternative fuels."
Of course, Governor Rendell believes those investments should only be made by government because he, not private companies, know what is best.
The Tax Foundation's blog on Rendell's proposed windfall profits tax.
When Governor Rendell intoduced his proposed "Oil Company Gross Profits Tax", he bashed Exxon-Mobil and their profits. The Governor apparently forgot that Exxon's profits are owned by people, including being one of the largest holdings of Public School Employees' Retirement System--the pension plan for public school teachers.
Much has been made about Exxon's "record profits", but no media focused on their "record taxes"--Exxon paid three times in taxes what they earned in profits.
Why is this relevant? In a few hours Governor Rendell will propose that we need to tax Exxon (and other oil companies) even more, because apparently state Government deserves a greater share of their earnings. His plan will be to use this money to fund public transit. Apparently only "evil" oil companies deserve more government plundering, but ethanol companies deserve state subsidies.
Of course Governor Rendell believes gas prices are entirely driven by oil companies--which is why they lowered gas prices before the election to help Republicans, only to raise them afterwards ... wait, you mean to tell me that didn't happen? Rendellconomics isn't supported by fact?
For more reading on the subject, read Matt Brouillette's Commentary on why windfall profits tax are a bad idea.
Also check out my Commentary on why we need a "windfall profits" tax ... when government takes too much of our money.
A "windfall" tax on "big oil" will only reduce the supply of oil and increse the cost of gasoline, writes Pittsburgh Tribune-Review columnist Colin McKnickle. It is a shame, he writes, that Governor Rendell is "so ignorant of fundamental economics and even history. "
The Wall-Street Journal disagrees - not with the claim that a windfall tax will increase prices, but that those calling for a windfall tax know what they're doing. Liberals and environmentalists have been pursuing a reduction in oil supply, higher gasoline and oil taxes, and higher gas prices for years.
Should the federal government create a new tax on profits only for oil companies, as Governor Rendell suggests? This "windfall tax" esentially ensures a limit on the amount of profit a company can earn. Here are some things to consider:
1) Profits go to investors - companies with profits distribute that money to investors through dividends, or with new investments (in this case oil exploration, refining facilities, etc) that go to increase share value. Profits benefit people. Governor Rendell certainly believes that big government should take profit and distribute it, rather than let companies distribute it themselves.
2) Oil company profits are already heavily taxed (as are all companies). Nearly 40% of corporate income have been taken by federal and state government. To reference point 1 - these taxes reduce the money go to shareholders (which will be taxed again through dividends and capital gains taxes).
Tax Foundation: Large Oil Industry Tax Payments Undercut Case for Windfall Profits Tax
3) There is no evidence that oil companies have coluded, and no evidence of price gouging has been shown. Oil companies are mearly charging the market price.
National Review Online: "Pandering at the Pump"
4) Restricting profits has two obvious effects - it reduces the incentive to invest in gasoline refining, and takes the money that would be used to do so. This leads to a reduction in the supply of gasoline, which leads to .... higher prices.
Cato Institute: Economic Amnesia: The Case against Oil Price Controls and Windfall Profit Taxes
5) Perhaps the most important consideration - high gas prices are the result of oil companies, but the result of government policy. Mandating increase use of ethanol, tariffs on imported ethanol, mandated "botique fuels," along with a host of other federal and state policies have driven up the price of gasoline.
Wall Street Journal: Gas prices rise, and Republicans panic
Oil windfall taxes won't lower gasoline prices, but will only (and only for the short term) take money from companies and investors for the government.
