Dodging An Economic Bullet
By Pejman Yousefzadeh Posted in Economic Ignorance | Economy | Gas Prices | Oil Prices | Windfall Profits Tax — Comments (7) / Email this page » / Leave a comment »
So the majority party in the Senate believes that the best way to bring down gas prices is to impose a "windfall profits tax" on oil companies--this despite the fact that the tax will eventually be passed on to consumers. It also wants to legislate against "price-gouging," whatever that is. Good thing this feel-good/do-nothing bill went down to defeat. The reasons why that defeat was deserved can be found here. This is an old article, but as it turns out, it is still applicable.
Incidentally, when will we have a "windfall profits tax" imposed on farmers? It makes just as much sense as imposing such a tax on oil companies.
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Dodging An Economic Bullet 7 Comments (0 topical, 7 editorial, 0 hidden) Post a comment »
You REALLY need to check your facts a bit.
XOM's market cap is $468 billion with their total revenue a bit less at $ 390 billion (FY 2007) and their profit margin about 10% for a profit of $40 billion. Out of their revenue stream, they paid $72 billion in excise taxes and nearly $30 billion in income taxes (this doesn't include payroll, property or other taxes). So the government made $110 billion off of XOM while the XOM shareholders made about a third of that.
Yes, those look like really big numbers, but they're nothing compared to the Federal Government. Federal revenue was $2.6 Trillion and they spent $2.9 Trillion (at least on budget). XOM's income would cover a couple of days of federal spending.
But you also ignore what XOM does with those profits. They pay some of them back to the owners of the company (millions of shareholders) and they invest the rest in new energy development. The federal government, well, doesn't. Windfall profits taxes would kill most new production and re-investment into energy production.
Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.
the oil companies are not anywhere near the largest corporations in the country, and their profits are not the largest.
You are not a bright person if you fall for populist garbage. You need to educate yourself.
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While Brian points out how ridiculous comparing anything to the size of the Federal Government is, you are incorrect that oil companies aren't some of the largest corporations. Exxon Mobile IS the largest, most profitable, company in the country. Chevron is 6th, and ConocoPhillips is 14th. That's 3 in the top 20 right there.
Largest US companies by market cap as of 6/7/08:
Exxon Mobil XOM $458,572
General Electric GE $299,221
Microsoft MSFT $256,022
Wal-Mart Stores WMT $230,567
AT&T Inc. T $227,006
Chevron Corp. CVX $205,804
Exxon Mobile had 39.5 billion in earnings last year which set the record for most profits ever by a US company. They held the previous record as well.
I am not in favor of a windfall profits tax on corporations. I AM in favor of rescinding tax breaks for what is a highly profitable industry at the moment. For example, have we finished re-negotiating all those screwed up contracts for Gulf oil production under Clinton yet? We don't need to break them, just make fair renegotiation contingent upon future federal drilling rights elsewhere...
It seems like I can't go a single day without having to make this point to someone.
Yes, you're right, XOM is the largest American corporation by market capitalization, and one of the top ten in the world. (For a few weeks late in 2007, PetroChina was the largest, with a market cap that at that time was twice the size of XOM.)
But in terms of after-tax profitability (less than 11%), XOM is really quite mediocre.
Any corporation with nearly $400 billion in annual revenue that can only squeeze out $39+ billion in earnings is not my idea of an extremely profitable company.
For comparison, look at Microsoft. With $57 billion in annual revenue, they have earnings applicable to common stock of about $16 billion. They're at least three times as profitable as XOM.
It seems to me that people like you simply have trouble getting past that $39 billion annual net-income number that XOM posts. XOM's bottom line is big because their top line is big, not because they're making windfall profits.
Would it make you happy if we just split XOM up into ten separate companies (Exxon-Mobil-1 through Exxon-Mobil-10)?
Then each of the ten would have an annual net income of about $4 billion. Now that's not nearly as worthy of a windfall profits tax, is it?
If you're really worried about windfall profits, you should be talking about slapping a bigger tax on Microsoft.
As pointed out above the oil companies only have a Profit around 8-10%, they make so much but they also put most of that into the growth of the company and the hell the country itself. On the other hand Farmers, Media, Electronics and phone companies all have a profit % much much higher then Oil, some verging on the up 30%.
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In addition to the windfall profits tax, we can expect no new drilling or refining allowed, tightened environmental regulations on existing drilling and refining facilities, more lawsuits against "big oil", $150B in new taxes for alternative energy "investments", and of course no new nuclear plants and no permits for disposal.
And speaking of windfall profits, how much of this windfall does Obama propose taking? The two Google founders padded their combined $26B worth of stock by $5B in a 24-hour period in April. Compare and contrast to Obama complaining that Exxon-Mobil made $11B profit in the entire first quarter.
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Obama's guiding principle: "I reserve the right to revise and extend my remarks."
In answer to your question about farmers: when farmers are making 50 billion dollars per year in profits, and buying back their own stock at a rate of 30 billion dollars per year, we can consider windfall profits taxes on farmers.
Why do you say this tax would get passed on to consumers? That only happens when you need to raise prices to meet your costs so that you can be profitable. They have so much profit they literally don't know what else to do with it except buy back stock.
A single company (XOM) could write a 500 dollar check to every American taxpayer ( like the governement did this year ), and it would have no effect on the company. They wouldn't even break a sweat. It's fair to say that XOM is not like any other company in America. In fact, it's the largest company in the world. (it varies but in the top few) It's practically a branch of our government for all intents and purposes, and certainly controls the life-blood of our economy.
My point being that general arguments about free markets completely break down when a company takes on a size and power comparable to the federal government.
That doesn't mean I support a windfall tax necessarily, but I might. I'll read your link above now.