Oil company profits and taxes

[Giant Communist Robot]

I was forced to look at this stuff yesterday. Now that the price of oil has gone up, oil companies are reporting record profits. I see the average profit per gallon is about ten cents http://www.investmentu.com/IUEL/2007/20070323.html. Now look at this:

The federal government gets 18.4 cents
The state of Hawaii gets 17 cents
Honolulu gets 16.5 cents
We also have a general excise tax on Oahu that comes to 17 cents.

68.9 cents per gallon in taxes. It looks like these oil companies do a good job of supporting our government. No more whining about how much money they make. When the price of gas goes up it leaves more room for more taxes.

[Trumpetmaster]

GCR - I saw a report where they may provide relief on the Federal Gas tax during the summer months.... Then a bean counter came on and said it would only save each person about $30.

I filled my car today.. Paid $4.02 a gallon..... NY also has alot of taxes on gas....

It seems the politicians and oil companies are in bed together...

President Petro Profits... ummm... OT where are you????

[piqaboo]

They're gonna tax something.
They dont currently tax food, and I expect it to stay that way.

Big taxes go on 'luxury' items (terbacky) and widely used things that are thought non-essential.
I suspect gasoline was in that latter category once upon a time, tho it is pretty central to our current economy. It made sense to tax fuel, since the fuel was used on the highways that the governments pay for.


GCR - are the taxes you showed in your example fixed at $0.xx per gallon, or are they a percentage of the price per gal?

[Trumpetmaster]

They're gonna tax something.

Yes....

[Giant Communist Robot]

piqaboo wrote:

They dont currently tax food

They do here. They also tax doctor visits and both OTC and prescription medicine.

are the taxes you showed in your example fixed at $0.xx per gallon, or are they a percentage

Some taxes are fixed, others a percentage.

[dai bread]

They tax food here too. It's called GST, equivalent to the European VAT, and is pretty well universal. There's a bit of a song & dance about removing it to give relief from rising food prices (yes, even here where we make the stuff!) but as both major political parties are dead against it (as am I) it won't be done.

If you want to know why I'm against removal of this universal tax from food, look at the army of VAT inspectors the British employ, and the difficulty traders have in calculating the correct figure. Presumably other Europeans do too; I don't know. We have a single tax at a single rate levied on most things. It's normally simple to administer- sales minus purchases, divide by 9, then write the cheque.

You have to consider whether or not you remove tax from all food, or just some "basic" items. Those calling for its removal will be horrified to know they are making my pannini & smoked salmon cheaper, but that's bread & fish, and what's more basic than that?

The other problem with the removal of tax is that it's one-off. The benefit will be gone in 3 months.

[Haggis@wk]

If we elect Barack Obama or Hillary Clinton, we will get a rerun of the windfall-profits fiasco that Ronald Reagan finally ended in the early 1980s. Obama has added his own plan to Hillary’s on the stump, which would hike taxes on oil companies while gas prices go through the roof. Not only does this make little sense, but we already have a history of failure that proves it, as Investors Business Daily reminds us.

First, Obama’s plan targets all revenues above $80 a barrel, without really explaining why he chose that particular number:

Among the options Illinois Senator Obama is mulling is imposing a 20 percent tax on the cost of a barrel of oil above $80, said Grumet, who spoke at a conference in Washington today.
“The industry has profited greatly — over $150 billion in 2007 — due to global instability fueled by conflict in Iraq, failing domestic fiscal policies that have weakened the U.S. dollar and skyrocketing global demand resulting from a lack of investment in alternatives,” said the Obama fact sheet.

Energy companies argue that new taxes will discourage production at a time when supply is needed most.

Clinton would impose a $20 billion windfall profits tax on oil companies over the next decade and repeal $30 billion in tax breaks over 10 years to pay into a so-called strategic energy fund, said Brian Deese, Clinton’s economic policy director.

Profited “greatly” depends on which measure one uses for that determination. The industry did make $150 billion in profit, but that came from more than $1.7 trillion in sales. Their profit margin came to a whopping 8.3%, which underperformed the entire manufacturing sector as a whole. For investors in the oil industry, and 8.3% return on investment doesn’t exactly equate to screamingly fabulous growth, especially when looking at pharmaceuticals (18.4%) and beverage makers (19.1%).

Describing an 8.3% return as “windfall” demonstrates the economic illiteracy of the Democrats. Of course, so does the notion of combating high prices through an increase of the tax burden. Where does Obama believe that tax goes? It gets paid by hiking prices at the pump.

IBD reminds us that the Carter-era policy flopped the last time we tried it:

Besides, we’ve tried windfall profits taxes before, in the early 1980s, and they were an utter failure. As the Congressional Research Service found, revenues produced for the government were nearly 75% below what was expected. Meanwhile, domestic oil output fell 8%, while oil imports surged 16%. ….

Oh sure, Big Oil’s profits are up. But so are the taxes they pay. In 2006, that came to $90 billion — up 334% in just four years.

This is how Clinton-style populism works. It starts with ignorance and ends with serious damage to our economy.

Oil prices aren’t high because profits are up; they’re high because we don’t have enough oil. By clamping down on drilling, refusing to move forward on nuclear energy and hitting producers with punitive taxes, Congress is doing all it can to ensure we don’t have enough in the future.

Industries have three ways to lower prices: produce more, lower demand, or reduce cost overhead on production and sales. The Obama and Clinton plan essentially kneecaps oil companies by refusing to lift restrictions on drilling and then making it much more costly for them to buy and sell gasoline. It’s a prescription for even more reliance on foreign oil, skyrocketing prices, and economic instability.

[Shapley]

Good Times Return To Oil City

I suppose we should tax the Hell out of these oil barons?

[piqaboo]

Haggis, I heard about those proposals. I think even McCain had some version.
How can they not get that all it will do is cause the oil company to raise the price at the pump, to cover the difference?

And then there's removing the Fed tax, short term. Thanks, no thanks. I suspect it would not impact price at pump much (oil companies again would record record profits), and the roads would go rather more to hell than they are. Use the money, inspect mexican and other trucking, and keep me from meeting a semi on a runaway.

[Giant Communist Robot]

Exxon's profit margin is 10.7%, and Microsoft is 26%--yet no one says anything. I suspect there is a lack of transparentcy regarding the relationship of the government and oil companies. I think the oil people know they are a convenient political target regardless of the facts, and are willing to accept the bashing. On the other hand, I hope the government knows excessive taxing of oil companies could be dangerous. Imagine a drop in price, then oil companies going bankrupt as their profit cannot sustain their obligations.

In my opinion we have way too much taxes, regulations, big government. Is this truly the sleekest, leanest government possible? Is this the government we deserve? Well, maybe some of you, but not me.

[piqaboo]

? No one says anything about Microsoft?
Did you miss the IE-coupling lawsuit?

[Giant Communist Robot]

? No one says anything about Microsoft?
Did you miss the IE-coupling lawsuit?

That lawsuit was about fair practices. What I meant was no one was squealing "egregious greed" when Microsoft's profit margin came in at nearly 2.5 times that of Exxon; so why pick on them? Is there any noise from congress about taxing software companies because of their "windfall" profits?

[OperaTenor]

From the NYT, earlier this year:

February 1, 2008
Exxon Mobil Profit Sets Record Again
By JAD MOUAWAD
By any measure, Exxon Mobil’s performance last year was a blowout.

The company reported Friday that it beat its own record for the highest profits ever recorded by any company, with net income rising 3 percent to $40.6 billion, thanks to surging oil prices. The company’s sales, more than $404 billion, exceeded the gross domestic product of 120 countries.

Exxon Mobil earned more than $1,287 of profit for every second of 2007.

The company also had its most profitable quarter ever. It said net income rose 14 percent, to $11.7 billion, or $2.13 a share, in the last three months of the year. The company handily beat analysts’ expectations of $1.95 a share, after missing targets in the last two quarters.

Like most oil companies, Exxon benefited from a near doubling of oil prices, as well as higher demand for gasoline last year. Crude oil prices rose from a low of around $50 a barrel in early 2007 to almost $100 by the end of the year — the biggest jump in oil prices in any one year.

*************

Additionally, isn't oil a national security resource? Aren't we engaged in a global war on terrorism(hereafter referred to as TWOT - wish I could take creative credit)?

Some here are quick to draw parallels between TWOT and WWII. How about parallels dealing with war profiteering?

Why do these guys, who post record profits almost every quarter, get tax breaks in the first place?

It's all in GWB taking care of his true constituency.



Aside from trying to cop a feel from Angela Merkel, what other head of state has he fondled besides the House of Saud?

[Shapley]

=The company reported Friday that it beat its own record for the highest profits ever recorded by any company, with net income rising 3 percent to $40.6 billion, thanks to surging oil prices. The company’s sales, more than $404 billion, exceeded the gross domestic product of 120 countries.

That's still about 10%. I don't see why you see that as excessive profits.

[Haggis@wk]

"Why do these guys, who post record profits almost every quarter, get tax breaks in the first place?"

If we are planning to take their profits now why weren't we pumping money into them in the 70s - 80s when they were bleeding red ink?

[Shapley]

What Kind Of Tax Breaks Does The Government Give To Oil Companies?

Interesting to note that only about $2.8 billion of the oft-touted $18 billion in tax breaks actuall goes to oil companies. Rescind the tax breaks, and you hamper alternative energy sources, the major recipients of them.

[BigJon@Work]

The problem with the alternative energy tax breaks is the often get invested in boondoggles or projects that would have been fully funded anyhow.

Corporate tax rate should be zero if we want to incent companies to stay on-shore. Make it up by taxing all perks as income at fair market value.

[Shapley]

That's part of the idea behind 'tax simplification', an idea that was bandied about during the reign of Ronaldus Maximus, through the terms of Bush I and Bill Clinton, but eventually died with Newt Gingrich' drumming out of the House. At one point, tax simplification seemed inevitable. Even Richard Gephardt was on the talk circuit saying so. The fall of Newt Gingrich ended that speculation, and I don't doubt that was a large part of the motivation behind the relentless attacks on him.

Some proposals included the elimination of corporate taxes, but that was generally deemed politically unfeasible, since the public-at-large still considered corporations evil and corporate taxes were considered just punishment for the evil of incorporation. The most common (and most palatable, politcally) included flat-rate taxes on corporations, but that would eliminate a lot of jobs for accountants and lobbyists, not to mention ending a lot of the reason corporations put money in politicians' pockets. If you know you can't buy a tax break (or a subsidy), why pay a person to pay a politician to try?

Tax simplification: good for the citizens, good for the economy, bad for politicians. Unless we elect honest politicians, it'll never happen.

[Giant Communist Robot]

So the average per gallon profit for the oil companies is about ten cents. Is that so high that it becomes unethical or immoral? How does that compare to other industries? Clearly, that means a lot of gallons were sold. By what nefarious means did the oil companies force those sales? After they sell so much, it becomes an outrage? Can anyone here say they did not have some complicity in this outrage? Maybe you should be penalized with some more taxes, too.

And remember, the oil companies do not set the price of oil. Even OPEC can't do that. Its set in the open market. Sure, I know oil companies participate there--but is there any proof of price fixing? Even congress wants to blame speculators, not oil companies.

[OperaTenor]

Au contraire, GCR. OPEC determines the price of a barrel of oil by its quota system. They've been throttling the flow for decades.

Why else do you suppose they meet?