Please Define What a ‘Windfall Profits’ Tax Is…
By Betsy Newmark
High School History and Government Teacher/Blogger
Liberals like to bleat about the oil companies making “windfall profits” as if there is some point when making a profit is bad. So the Wall Street Journal asks what the definition is of a “windfall profit.” This is important to know because Senator Obama has proposed giving each American family a stimulus check of $1000 paid for by a windfall profits tax on the oil companies. He is presently running an ad touting his plan.
“After one president in the pocket of big oil we can’t afford another,” says the ad, referring to President Bush’s previous work in the oil industry.
Obama hoped to emphasize energy and the economy in campaign stops this week in Michigan, Ohio and Indiana, beginning with a speech Monday in Lansing, Mich. Gas prices over $4 a gallon have become a top issue in the presidential contest.
Obama’s spot trumpets his proposal to revive a windfall profits tax on energy companies and asserts that McCain favors tax breaks for the oil industry.
“A windfall profits tax on big oil to give families a thousand-dollar rebate,” an announcer in the ad says.
Obama has pushed for such a tax to fund $1,000 emergency rebate checks for consumers besieged by high energy costs.
Congress enacted a windfall profits tax in 1980, during an earlier era of high oil prices, but repealed it in 1988 amid concerns the tax was discouraging domestic oil development. Last year, the House approved $18 billion in new taxes on the largest oil companies, but they were blocked by Republicans in the Senate.
The new Obama ad opens with a driver pumping gas. The announcer says, “Every time you fill your tank, the oil companies fill their pockets.”
Some enterprising reporter should ask him how he defines windfall profits. Perhaps he has a similar approach to American business as his colleague from Illinois, Senator Durbin, who said that “The oil companies need to know that there is a limit on how much profit they can take in this economy.”
So what is the right amount of profit for an American company today? The WSJ tries out several definitions.
Take Exxon Mobil, which on Thursday reported the highest quarterly profit ever and is the main target of any “windfall” tax surcharge. Yet if its profits are at record highs, its tax bills are already at record highs too. Between 2003 and 2007, Exxon paid $64.7 billion in U.S. taxes, exceeding its after-tax U.S. earnings by more than $19 billion. That sounds like a government windfall to us, but perhaps we’re missing some Obama-Durbin business subtlety.
Maybe they have in mind profit margins as a percentage of sales. Yet by that standard Exxon’s profits don’t seem so large. Exxon’s profit margin stood at 10% for 2007, which is hardly out of line with the oil and gas industry average of 8.3%, or the 8.9% for U.S. manufacturing (excluding the sputtering auto makers).
If that’s what constitutes windfall profits, most of corporate America would qualify. Take aerospace or machinery — both 8.2% in 2007. Chemicals had an average margin of 12.7%. Computers: 13.7%. Electronics and appliances: 14.5%. Pharmaceuticals (18.4%) and beverages and tobacco (19.1%) round out the Census Bureau’s industry rankings. The latter two double the returns of Big Oil, though of course government has already became a tacit shareholder in Big Tobacco through the various legal settlements that guarantee a revenue stream for years to come.
In a tax bill on oil earlier this summer, no fewer than 51 Senators voted to impose a 25% windfall tax on a U.S.-based oil company whose profits grew by more than 10% in a single year and wasn’t investing enough in “renewable” energy. This suggests that a windfall is defined by profits growing too fast. No one knows where that 10% came from, besides political convenience. But if 10% is the new standard, the tech industry is going to have to rethink its growth arc. So will LG, the electronics company, which saw its profits grow by 505% in 2007. Abbott Laboratories hit 110%…..
General Electric profits by investing in the alternative energy technology that Mr. Obama says Congress should subsidize even more heavily than it already does. GE’s profit margin in 2007 was 10.3%, about the same as profiteering Exxon’s. Private-equity shops like Khosla Ventures and Kleiner Perkins, which recently hired Al Gore, also invest in alternative energy start-ups, though they keep their margins to themselves. We can safely assume their profits are lofty, much like those of George Soros’s investment funds.
So is Senator Obama planning to tax all these other businesses? Is his plan for growing America’s economy to say that we need to tax excess profits from any American business that grows fast and does well and then redistribute that money to average American folk? What does he think such a plan would do for the GDP over the long run? Does he not think that companies would react to such a tax plan and how would their reactions affect the growth of the overall economy? These are all questions that reporters who thought just a minute about what his demonization of the oil industry and his desire to tax their “windfall profits” would mean.
Perhaps the Democrats’ only concern is with companies that supply much-needed products to the American consumer such as oil. Well, by that definition, we could borrow from Jim Lindgren’s sarcastic proposal for a windfall profits tax on farmers. Farmers certainly have been doing well recently.
The U.S. Department of Agriculture estimates that net cash farm income nationwide will hit a record $96.6 billion this year — up 10% from last year and 40% from 2006
And companies that supply farmers have also had a good year.
Farmers aren’t the only ones making money from the run-up in commodity prices. Companies that sell things to farmers, everything from fertilizer to seed to tractors, are reporting healthy profits, too.
Terra Industries (TRA), a major fertilizer supplier, reported that its fourth-quarter 2007 profit jumped by six times over the year before.
Deere (DE)— which makes tractors, harvesters and other farm equipment — reported record quarterly earnings. Agricultural equipment sales were up 33%.
But rather than hearing demagogic attacks from Democrats on their nasty profits, Congress just voted them, over Bush’s veto, a pork-filled bill to give them more government money. As Bush said about the bill,
“Farm income is expected to exceed the 10-year average by 50% this year, yet Congress’ bill asks American taxpayers to subsidize the incomes of married farmers who earn $1.5 million per year,” he said in a statement Tuesday.
So the oil companies get demonized and the farmers get government handouts. Go figure.
As the WSJ concluded, the definition of a “windfall profit” is certainly case-dependent.
The point isn’t that these folks (other than Mr. Clinton) have something to apologize for, or that these firms are somehow more “deserving” of windfall tax extortion than Big Oil. The point is that what constitutes an abnormal profit is entirely arbitrary. It is in the eye of the political beholder, who is usually looking to soak some unpopular business. In other words, a windfall is nothing more than a profit earned by a business that some politician dislikes. And a tax on that profit is merely a form of politically motivated expropriation.
It’s what politicians do in Venezuela, not in a free country.
But that is the plan of Senator Obama and many of his Democratic supporters. They have a very skewed idea of how our economic system should work. The only constant seems to be to try to score political points in demagoguery without much concern for the overall effects of such a tax.
Perhaps it is time for a little history lesson before the Obama administration pushes through this return to Carter economics. The last time we had a windfall profits tax on oil was in 1980 and, as might have been predicted if the politicians then had understood a bit of economics, was exactly the opposite of what the country needed, as Jonathan Williams explained a couple of years ago when there was also talk of such a tax on the oil companies.
Numerous lawmakers, from Senate Minority Leader Harry Reid (D-Nev.) to Sen. Arlen Specter (R-Pa.), are lining up to support a new federal windfall profits tax, with the aim of redistributing profits from “greedy” oil companies.
But lawmakers could benefit from a history lesson. The last time this country experimented with such a tax was the Crude Oil Windfall Profit Tax Act of 1980. According to a 1990 Congressional Research Service study, the tax depressed the domestic oil industry, increased foreign imports and raised only a tiny fraction of the revenue forecasted. It stunted domestic production of oil by 3% to 6% and created a surge in foreign imports, from 8% to 16%.
Politicians calling oil companies “greedy” is more than a little ironic. Tax Foundation studies have shown that state and federal treasuries profit handsomely from oil industry sales. The average American motorist pays taxes of 46 cents a gallon on gasoline, of which 18.4 cents a gallon goes to the federal government. States and localities pocket the rest.
The nation’s energy companies are already providing a “windfall” of taxes. According to Department of Energy data, from 1977 to 2004, federal and state governments extracted $397 billion by taxing the profits of the largest oil companies and an additional $1.1 trillion in taxes at the pump. In today’s dollars, that’s $2.2 trillion – enough to buy a Toyota Prius for every household in the nation.
In fact, oil companies have paid in taxes more than three times what they earned in profits during those 28 years.
As the oil industry brings in record profits, it also pays record taxes that average 39% worldwide, even after accounting for special deductions and credits. That compares with a 33% average tax rate for other industries.
In 2005, Chevron, ConocoPhillips and Exxon Mobil paid more than $158 billion in total worldwide taxes. This gargantuan tax bill nearly equals the entire economic output of Iran and surpasses the total gross domestic product of 150 of the 184 countries ranked by the World Bank.
It would be unfair and absurd to tax workers at different rates, based merely on the industry they work in. Similarly, it makes no sense to tax an industry punitively based on the volatility of its profits. Oil will always be a boom-or-bust business.
I sure hope that someone will ask Obama, perhaps in a debate, why he supports the idea of a windfall profits tax on the oil companies even though the last time that happened, gas prices went up and our imports of foreign oil also increased. Perhaps Senator Obama would give a similar response that he gave in the ABC debate when Charlie Gibson asked him if he still supported an increase in capital gains taxes even though, in the past, a decrease in capital gains taxes has driven up the revenue the government gets. Senator Obama’s response was illuminating. He wasn’t interested in the economics of his proposed actions, but in the perceived “fairness” of taxes and business.
Economist Donald J. Boudreaux sums up Obama’s plan for tackling oil prices. <blockquote>
In other words, a critical part of Sen. Obama’s strategy for reigning in high gasoline prices is to subsidize gasoline consumption and more heavily tax its production. This plan - which increases the demand for gasoline and reduces its supply - makes as much sense as trying to put out a fire by dowsing it with jet fuel.
Folks, this is all a very dangerous approach to the economy. If we’re going to impose taxes based on some politician’s idea of fairness and whichever industry can be demonized to score partisan advantages, we will be endangering our entire economic system and minimizing economic growth. First it was Big Tobacco. Now Big Oil. Tomorrow perhaps, Big Pharmaceuticals. Can Big Tech or Big Food be far behind on the target list? And remember, companies don’t pay these taxes out of the goodness of their souls. They pass along the taxes to consumers. Soon Big Consumers will be paying for all this.
What a great article. Can you please give Bil O’Reilly this economics lesson? He doesn’t help the cause with his total refusal to understand this.
A question for Sen. Obama in one of the debates:
1. Could you please list all of the items that oil is used for in our daily lives?
This should also be a question asked of all our elected officials. If we were to end “BIG OIL” the Unions and their people might be out of work- because it isn’t just the ‘big oil’ executives that work for the company but millions of everyday Americans. Tax oil out of existence and you tax people out of a job.
Thank you, thank you, thank you. I am enjoying your well thought out articles. It is frustrating to hear all the talk of ‘windfall profits’ for ‘big oil’ and not one mention of the ‘windfall profits’ of other comapnies. It is likely that Sen. Obama has never looked at a quarterly report from a ‘big oil’ company- if he did he would see that they are investing in more than just gas for your tank. Has anyone checked on the ‘windfall profits’ that trail lawyers receive? Do Unions show a profit?
Your students are getting a top notch education from you, your analysis on a subject is well thought out and documented, not just talking points and sound bites.
Obama couldn’t care less about who gets hurt by what taxes. Even if it brings America to its economic knees, no problem. He’ll just blame it on the Republicans and “big oil” (whatever that means). He cares about one thing: getting into the White House, and he’ll do just about anything to get there.
I am a conservative-leaning Independent, and I’ll tell you why I support a windfall tax on the oil industry. Windfall taxes are not universally assessed on corporations or certain industries, so the ambiguous term “windfall” shouldn’t be a source of conflict — unless, of course, you are IN the oil industry, in which case I understand why you would want the term to apply to everyone. The term windfall was left ambiguous for the exact reason that only in special situations would it be used. Case by case scenarios. I am against most tax increases, but this case is special. Listen to me carefully: AMERICA HAS NO REAL PUBLIC TRANSPORTATION SYSTEM, I.E., NATIONAL RAIL SERVICE. Therefore, we have no choice but to drive our vehicles if we want to go somewhere. And we Americans are notorious for waste, like driving to work everyday. I agree. I think we should all walk the 12 miles to work. And we should be ashamed for wanting to drive our children to school. Let ‘em take the bus, right? Of course I am being silly. But so is failing to lay a hefty tax on the greedy oil barrons. They have claimed the highest profits in American history, broken every record for profits of ANY kind in this nation’s history! Doesn’t that sink in?? I can’t be the only sane person in this great nation. It’s not ONLY markets and supply and demand issues that have driven the price of gas up. Not when the oil companies are making obscene profits that would make Bill Gates look like a panhandler. WE are paying more at the pump, held hostage to these high prices by a greedy, sleezy bunch of corporate highway robbers. And we — the hard-working American public — have no option but to pay it. BECAUSE WE HAVE NO REAL, WORKING PUBLIC TRANSPORTATION SYSTEM. And these crooks know that. Hit them where it hurts. Money. I live in Florida, and after a hurricane, companies are not allowed to raise their prices on food, lumber, gas. WHY? Because it’s an unscrupulous practice. It’s called price-gouging, and people are fined, businesses are closed, and people go to jail for it. What in the world makes people keep defending these oil barrons? They are enrichening themselves at our expense. Sometimes I really DO feel I am the last sane person in America!
How about a “Windbag Profit” tax on Keith Olbermann? Five million a year in income and I would suggest that he is worth about five dollars a year which leaves a lot of windbag profit to be taxed.
Comment by Laur
August 5th, 2008 at 8:57 am
Will Oprah Winfrey and Bill Gates, along w/ tons of sports and entertainment figures fall into the extra “windfall” taxation? When Couric moved to CBS, it was surely a “windfall” for her! And it isn’t as though she contributed to any additional success for CBS. Let’s see — who else can we tax for making more money than we think they should?
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Britney Spears, Paris Hilton, and my newest favorite idiot: George Clooney
John Ace
The only thing progressive income tax does is penilize people that succeed and work hard and reward you for doing the minimal effort and/or hiding your money. Also shifts money to non taxable assests, away from capital.. which if you might remembr is the engine that creates jobs.. unlike the government which looking at the true facts actually loses jobs by taking money from the free market and creating”jobs” that really do not produce anything.
One of the reasons US companies are leaving the US by the way, John, is not just they think we get to much in salary.. it is our corporate and employee taxes and regulations are non-competiative with many parts of the world.
Remember corporations do not pay the corporate tax.. they just collect it from their customers and give it to the governement.
So any “windfall tax” on them.. is really you…
George
Dear Ravi Kulkarni
You are the one that needs to wake up… every one of your points can be said of any company, and special interest by the way, except maybe the limited resource point. In fact the social liberial groups like labor unions, lawers, etc have the biggest lobbling and PAC groups and influence the government much more the oil companies. However, everytime one of your wacko liberial think tanks say the supply is going guess wahat more is found… amazing.
Ever read the late great planet earth.. think our food supply was supposed to be exhausted by 2000 in that one.. you do read don’t you?
And it is true the true cost of oil cunsumption is not openly discussed.. how about that hugh cut off the top given to the government… talk about windfall profit… and we still have bridges falling down.. amazing.
You want more affordable energy.. GET GOVERNEMNT OUT OF IT>
More reasons NOT TO GIVE THE GOVERNMENT YOUR MONEY…
HAve a nice day
George
Dear Jenny Tailor
I love your idea
Think we should.
To the Liberal Democrats in Congress…Keep your hands off our free markets and they’ll do just fine.
Obama take heed on this.
These guys and their socalist ideas will destroy our country.
A wind-fall profit is simple to define. All profit is just profit. A wind-fall profit comes from finding something that in the normal course of business you would not find. Such as a farmer finding a gold coin on his farm worth a million dollars.
This piece was worth the read, if only as a reminder. When was it that Econ 101 become lost knowledge? It’s refreshing that most of the comments are grounded in common sense along with an understanding of how markets work. I must say, however, that I don’t believe that these comments come from a reliable sample of America’s voters. If it is, then all is not lost. But I fear that the quality of judgement of the electorate has us in an almost even race. I hope I’m wrong.
Perhaps the trick is that people must be motivated to learn. It’s more difficult to draw upon ones own motivation in order to understand basic economic theory. It’s understandable that many take the shortcut to folly rather than apply themselves. It’s understandable, but it’s not always right. Could it be that the truly greedy are the ones who take the easy way, pulling the rest down with them?
If you can afford a $35,000 SUV and afford to gas it up, more power to you!! I can’t, but I sure don’t begrudge someone who can. Yes, we all need to conserve if needed and we do need more fuel efficient vehicles. But quit whining because you’re neighbor can afford his SUV and the fuel costs that come with it.
I just bought a new car a couple of months ago. Does it get 50 MPG? Nope. But it’s nice having a new vehicle that has plenty of safety features, is roomy and comfortable, and I don’t have to nickel and dime myself with repairs like I do with my older cars. And somebody must be able to afford new vehicles because I sure see a heck of a lot of them on the road these days.
Gas prices must go down no doubt, but you can’t squawk about the oil companies making a profit while other industries are doing the same. It’s called capitalism….and we should all be so lucky.
John ace you said
Comment by John Ace
August 7th, 2008 at 1:37 pm
A windfall tax is not needed - just put in a more progressive income tax for individuals and corporations that takes more taxes the more you make, our current tax rate for the first 10 million dollars you make and a 1% tax increase on each 20 million over that up to a max of 75%.
Aso do the same for inheritance tax.
Your answer is to punish people that have worked hard and provided jobs? If I work hard and pay taxes on my earnings…I should be taxed again on my money when I pass it on to my kids? Go back and check history and see what a high progressive tax rate has done to this country. Maybe you would also support a 100$ tax per comment left on blogs/news articles as well, but then you would complain that is an unfair tax. If people have more money..most people will spend more money and that trickles down through the entire economy. More taxes and high prices cause people to spend less..even those that are “rich”
Dear Betsy,
Thought provoking article. You forget to mention the following:
- Oil companies have been receiving some tax breaks for a long time - about $2.4 billion per year
- Energy companies have powerful lobbies in Washington which direct govt policy which is favorable to them and not so favorable to the citizens.
- Oil is a limited resource. Sooner or later we will run out of it. It is high time we find alternatives. So the money generated from the windfall taxes should be used for supporting research into solar and other alternatives.
- Oil is polluting, we need to reduce the consumption.
- Oil companies don’t exist in a vacuum. They are very much a part of the society in which they live, so while they benefited by society’s largesse during bad market conditions, it is their turn to do some good to the society when the going is good.
- True cost of oil consumption is not included in the oil price.
Like it or not, the turning point in American society has arrived. Conservatives wake up and the coffee!
Regards,
Ravi
A windfall tax is not needed - just put in a more progressive income tax for individuals and corporations that takes more taxes the more you make, our current tax rate for the first 10 million dollars you make and a 1% tax increase on each 20 million over that up to a max of 75%.
Aso do the same for inheritance tax.
Great article! I might add that in order to take this country back from the socialists, we need to go back to the early days of this country and allow those with land or a net worth to have 1 vote. Those with no land or net worth to speak of should have 1/2 vote (only for the sake of kindness). This should stop those with nothing from constantly taking from those who have something!
If you can afford a $35,000 SUV and afford to gas it up, more power to you!! I can’t, but I sure don’t begrudge someone who can. Yes, we all need to conserve if needed and we do need more fuel efficient vehicles. But quit whining because you’re neighbor can afford his SUV and the fuel costs that come with it.
I just bought a new car a couple of months ago. Does it get 50 MPG? Nope. But it’s nice having a new vehicle that has plenty of safety features, is roomy and comfortable, and I don’t have to nickel and dime myself with repairs like I do with my older cars. And somebody must be able to afford new vehicles because I sure see a heck of a lot of them on the road these days.
Gas prices must go down no doubt, but you can’t squawk about the oil companies making a profit while other industries are doing the same. It’s called capitalism….and we should all be so lucky.
Great article. Too bad the mainstream media won’t tell the truth in this.
Obama and liberal DIMocrats are socialists, except when it comes to themselves personally. They see they can get more votes by taxing (robbing) the fellow behind the tree and giving the proceeds to 5 others (after they skim and waste at least half of it).
If you believe any different, you must be a socialist too.
Any windfall profits taxes on Big Oil will negatively impact the liberal Teacher’s Union’s pension fund, that is heavily invested in that industry.
why doesn’t obama and similar politicians let the free market alone. this country was founded and expanded by private enterprise and keep the gov’t away. they are the problem.
I’m not liberal or conservative because if you follow either of their govermental policies they both result in slavery for the working man.
We established representative government because we couldn’t all be at the meeting to vote on issues due to the long distances involved.
Via the internet, we CAN all be at the meeting. This eliminates the need for representative government and we should do away with it.
It is now possible for the decisions about the people to be made by the people.
Why can’t people think outside the box?
Example: We could build nuclear powerplants in remote areas of Alaska. Use the energy to split water into hydrogen and oxygen and pump them via pipeline to the continental US. They could be recombined to generate electricity. I’ll bet that the entire project could be done for less money than what we have spent for the Iraq war.
Our politicians are evil and corrupt and they should all be fired with prejudice!
I can’t support Obama because he is a socialist. I can’t support McCain because of the Forestal incident and the rumors that he was a turncoat while a captive.
If these two are the best that the parties could come up with we are in deep doodoo.
It is funny to read some of these comments and not wonder how many people realize that the demoncrats in office know exactly what they are doing. BO may look like an idiot but I feel he knows exactly what he is doing. He thinks that the main group of voters in the US are idiots and he may be right. November will tell that story. From what I notice in blogs and in the media is that BO is considered a “messiah” and what he says is golden. There is no double guessing this guy for them. BO represents “change”. Unfortunately, the “change” he stands for will bring this country to its knees financially, economically morally and spiritually. I do have to say that it is a breath of fresh air to see that most of the people commenting on this blog are using their heads and seeing BO for what he is, ignorant at the fact that there are many of us that can see through his fog of empty promises and ulterior motives. I’m just curious if anyone realizes who is pulling “his” strings.
Hello All!
Hello Kevin !
“However, pure capitalism leads to monopolies.”
Pure Capitalism cannot lead to a monopoly. This an egregious and demonstrably proveable error propagated by economic dullards such as Marx.
If a producer drove all competition from the market and started to attempt to extract monopolistic profits from the market then other producers would reenter the market and drive the price back down.
The only way to drive competition from the market is to charge below market prices and suffer a probable loss. This is good for consumers because they are getting ahead. Bad for the monopolist.
Once all other competitors are gone fromm the market any attempt to charge above market prices would simply invite the competitors back into the market to share in the above average market profits. Competition will resume and the consumers will be back to squeare one. There will be only a temporary spike that is unsustainable over time.
In fact, the only way to sustain a monpoly is with government intervention. The very group you would hope to benefit you is the very group that will hurt you the most. Consider the pre-breakup telephone system. Consider the telephone options available to you now at prices ATT would never have charged in the absence of competition.
Markets work better than any government ever could. Consider that delightfully successful experiment formerly known as the USSR. Government management of the economy worked well, didn’t it?
Be Well,
Dave
What a well-written article. Too bad Obama and the left-leaning liberals who hate profits unless they are getting them, won’t read it. What a joke, $1,000 rebate? How much help is that really to the average American? Drill in the U.S.! DRILL NOW!!!!!!!!!! These people complain about smokers, oil profits and the like but, the sure love to get their hands on their money and raise taxes for their liberal foolishness off of these things.
No corporation pays taxes. They are compelled to collect taxes, on behalf of the government, that are called “corporate income tax.” In reality, the taxes are paid by the customers, owners (usually called shareholders) and employees of the company. It matters not if the company is large or small.
Somewhere, someone’s 80 year old blue haired grandmother lives on social security and an Exxon dividend. This poor little old lady will be the victim of a windfall profits tax. That will be the unintended consequence of Senator Obama’s plan. I hope my mom sold her Exxon stock and bought some windmills.
Windfall profit? Why not a windfall profit tax on pharmaceutical companies then? Their profit margins make the oil company profits look like a joke. I suppose since that doesn’t effect more people in the U.S. it’s not as politically correct.
Richard, have you ever seen what dirt roads do to a Honda Civic over time? Have you ever seen a Corolla after it has hit a deer? Have you ever tried pulling a horse trailer through the mud with a Ford Focus? In a region where farmers and oil field workers drive around in 1-ton duallies it simply isn’t smart to have your wife and kids running around in a small, fuel efficient car. That’s why my wife takes my son to school, soccer, shopping, and anywhere else they want to go in a BIG, BEAUTIFUL, BLACK SUV! With a big, fat 6.2 liter engine, 22 inch wheels and all-wheel drive.
You people who want to dictate how I live based on your values are the epitome of communism and socialism and the their companions, poverty and misery. I’m not rich but I’ll gladly buy you a one-way-ticket to a place where they do it your way, where they tell you what kind of car you can drive. Only it will probably be a mule. And take Obama and Hillary with you. I’ll buy their tickets too. Or, you can save me some money and just paddle a boat to Cuba.
This is an excellent article. But one point is missing. Exxon Mobil has only 3% share of oil world market.
Taxing Exxon excessively would put Exxon in competitive disadvantage relative to giant non-US oil
companies.
It is an excellent article. But one important point is missing. Exxon Mobil has only 3% of oil world market
share. Why wouldn’t we tax Exxon to death and get it out of business. Giant non-US oil companies
would gladly support this action.
If we take “windfall profits” due to a surge in a commodity price, do we cut their taxes later, or subsidize them when the prices falls below a certain mark. I remember gas being below $1 twice in the last 20 years.
Or do we leave well enough alone, and let the boom bust cycle play out.
I’m still waiting to hear how solar and wind will get me to work in my small pick-up. Energy efficient. My small block V-4 gets the same mileage as my previous small block v-6…. hmmmm
The leftist argument is always based on guilt and the “wrong” of being wealthy. In their eyes, the public good is helping (read that: GIVING) money to those that have not achieved success while punishing those who have for a moral cause that sounds similar to those of a radical religious zealot. It isn’t that there are no people deserving of help, it’s just wrong to use the club of government to make people help. There is no difference between someone that says I need to care for the poor because God says so and someone that says I should care for the poor because of “the public good”. Neither is a compelling morale justification.
Oil is a commodity. A portion of company profit is tied to the price fluctuations of the commodity. So - when oil goes from $20 to $140 a barrel, companies can benefit with profit.
In looking at big oil - after we factor out increased costs due to these same fluctuations - it is possible to mathematically determine how much of the record profits we have seen are due to the price change in the commodity versus a value added service (such as refinement etc). These could be classed as windfall given big oil did nothing to realize the profit save benefit from the commodity price change.
With that said - it is impractical to access a windfall profit tax on a supplier of a commodity (gas in this case) as they will simply pass the cost on to the consumer. Obama’s approach may look OK on paper given real windfall profit is occurring (at current crude prices) but it completely falls over like a house of cards in a deregulated industry. The only way Obama et al could make this work is via price controls and regulation. Make no mistake - Pelosi and the Dems would love to do just this, so a vote for Obama is very dangerous for the free market.
Excellant article. For those of you that want 7 second sound bites try this: Democrats want government to give more to you, Republicans want government to take less from you. Are you getting more from your government than they are taking from you? It’s as simple as that.
Notes:
Some people are thinking rationally, some are emoting there decisions. (impeach?)
Some people attack everyone who disagrees with them. (Fox doesn’t earn it’s money? - Hmm…
maybe… At least NYtimes and NBC give us proven fiction and call it news)
Questions:
1) Didn’t Pelosi and the dems get elected by promising us lower gas prices (Absolutely yes!)
Great job Pelosi! It’s easy to see your supporters cannot even tell when they’ve been had!
2)How is developing wind energy help me fly from NY to St. Louis any faster or cheaper?
2a) How does it fall to the oil companies to develop wind energy, shouldn’t that belong to electric companies?
I agree with the major tenants of the article; however, I do want to point out that his assertions about agriculture are not entirely true. While crop farmers (those that grow corn, soybeans, wheat, etc) are doing well and earning large profits this year, other sectors, notably the livestock sector, are not doing well. Expensive feed ingredients are hurting livestock farmers, whose income is not reflecting the increased costs. I would advise the author, and readers, to remember that agriculture is a diverse industry. In response to comments on the farm bill, as a farmer I do not agree with artificially raising crop prices through governement subsidies, nor do I agree with a bill that does not benefit all farmers equally. And, as the author conveniently forgot, the majority of the farm bill’s funds go to government food programs like free lunch in schools and food stamps.
One of the most accurate articles I have ever read concerning Obama freakonomics!
Ms. Newmark,
I can only think back to my high school years and wish that you had been my teacher. No, I wish that you (or someone just like you) had been everyone’s teacher.
So Americans are whining like children about “high” (you don’t know the meaning) gas prices but still drive around in gas guzzling SUV’s - here’s an idea, you could always buy vehicles with better fuel economy.
$1,000/vote. Is that a windfall to the voter?
I want to see McCain call Obama a dirty socialist the next time he mentions a windfall profit tax… better yet, create an ad calling him a dirty socialist.
What happened to the time when being called a socialist was an insult?
What happened to the idea of buying Exxon stock (XOM) to get your cut of the profit rather than stealing it from the company’s coffers?
What is that saying about the downfall of all great societies? In essence: It is over once the “people” realize they can vote money into their own pockets.”
Make no mistake, obama’s $1000 “rebate” (read as theft) is an attempt to buy his way into the White House.
Hmmmm. I think Sen McCain should agree with Obama’s plan and make the following announcement. “I agree with Sen. Obama that all the shareholders of Exxon should chip in and send each American family $1,000 this month. To keep the ball rolling, I think all the shareholders of Microsoft should chip in and send each American family a check for $1,000 next month. In October, I think IBM shareholders should—-”, etc. Companies don’t pay taxes! People do! If I had to guess, I would guess that lots of union members are going to support this measure not knowing that their retirements are invested in Exxon stock. This incredibly stupid (or really smart if you’re of a communist persuation) and unfathomable for someone even running for local government nevermind the post powerful position in the world.
Who’s going to buy us all new cars for “alternative fuels”? We need to face the fact that oil is going to be around for a long time.
Since the economic reasons for this tax don’t add up. Take money from big oil & give to the “little people”, (less a Billion dollar administration fee)who then have to spend it on more expensive fuel. There must be some other reason, maybe something best left unsaid. What will the results of this tax be? It MUST result in higher fuel cost, so that must be a desirable outcome. Make it un-profitable for the oil companies, and they will reduce their business in the US. They are multi-national and can probably find a country that treats them better.
Its fun to watch a stage magician take a coin in one hand and make it disappear, only to reappear in the other hand. Which must be part of the plan, to dazzle and confuse us long enough to get elected. And unless we all take our rebates and invest in a hydrogen fuel system or a bicycle, all or more of the oil money will go right back to big oil. It might be a little difficult for the airlines, trucking and farming industries to switch over, but I’m sure they have a plan for that as well.
This seems to be the perfect way to cause a depression. Make ALL transportation too expensive to be viable, driving the price of everything you buy up while de-valuing the dollar. Raise taxes until businesses fail causing massive unemployment. Give that tax money away to the little people who will keep you in power so you will keep sending those checks!
Great article!
No corporation pays taxes. They are compelled to collect taxes, on behalf of the government, that are called “corporate income tax.” In reality, the taxes are paid by the customers, owners (usually called shareholders) and employees of the company. It matters not if the company is large or small.
Somewhere, someone’s 80 year old blue haired grandmother lives on social security and an Exxon dividend. This poor little old lady will be the victim of a windfall profits tax. That will be the unintended consequence of Senator Obama’s plan. I hope my mom sold her Exxon stock and bought some windmills.
So let me see…
BO gives me $1000 because he is such a good guy and really cares about me and my family. The following year I have to add that $1000 to my taxable income which means that the $1000 check really wasn’t a full $1000. In the mean time my government gets a percentage of “my” $1000. Then oil companies get hit with a”windfall tax” to pay for “my $1000 minus taxes”. So the oil companies now have a burden to pay for “my $1000”. I am one of 150,000,000+ tax payers receiving this $1000 and one of $150,000,000+ taxpayers paying taxes on that $1000. So the oil companies get hit with a $150 billion+ tax and the government makes money on the taxable $1000 per tax payer. So let’s say on average, each of 150,000,000+ tax payers pays 3% on their $1000 handout, the government makes $4.5 billion in extra tax revenue. Now this money can then be used to create democratic programs to help the lazy. In the end…I pay more for a gallon of gas since the “windfall tax” can’t really be paid by the oil companies. This would hurt just about every working person’s retirement portfolio as well as people who actually work for these companies to put food and their table, so they would “have to” pass this on to the public in higher gas prices…but hey…I did get the $1000 minus taxes to help pay all that. BO is a genius!
I have always assumed that an individual citizen’s or corporation’s share of the tax burden should be directly proportional to the benefit received.
For example, spending on police, teachers, and fire fighters promotes local and regional stability in our country. As an individual I benefit from this, including the opportunity to earn tens of thousands of dollars a year. Meanwhile a company may benefit to the tune of hundreds of millions of dollars a year. Thus the corporation will pay a larger portion of the tax burden (millions) while I pay a smaller portion (thousands), yet we are each paying proportional to the benefit we received.
In 2007 our nation spent approximately $600 billion on defense. The bulk of this spending was used to promote global stability (having our armed forces either present and/or engaged globally). How much benefit does the average citizen gain from global stability? Minimal. Citizens require enough defense spending to secure our homeland and not much more. Corporations, on the other hand, require stable conditions wherever they operate in order to function reliably (i.e. profitably). For them, global stability is a must.
The oil industry is a prime example of this. When a region destabilizes beyond a certain point, their profitability in that region evaporates. Our armed forces are currently operating in regions where stability benefits the oil industry, and our very presence in these regions are driving speculation, and thus rising gas prices (increased profits for the oil industry, extra expenses for everyone else in America).
So the real question here is if companies that are simultaneously benefiting from and profiting from our defense spending should carry an equivalently increased portion of the tax burden?
I believe they should.
Paul,
The truth is sooo obvious.. so sorry you can not see it.. you must be a closet liberal. hah
george
I have never claimed to be an economic genious. However, I did find this article informative and well written.
What I came away with after reading the majority of the comments, including the particular blow hard everyone seem’s to get so much joy out of hammering (Yes you Bart!), was that I can’t help but think that everyone has overlooked one great thing. The fact that you can actually publically make your opinion known, (which I think Bart should do less of), is a right we often take for granted.
Thank a Soldier!
Responding to Wil that the windfall taxes in 1980 were because of the Republicans. If my math is correct, the Republicans did take the White House til Jan of 1981. The windfall tax was signed by Carter. The House of the Representatives was in control of the Democrats. It was the Republicans who repealed the law. Wil get your facts straight.
I always look for someone to challenge the economic and tax data presented by articles like this or similar ones in Investor’s Business Daily, but the liberal response is always emotional, involving villains with handlebar moustaches or Dick Cheney with black helicopters in a Hollywood movie. “If you’re not a liberal by 20, you have not heart. If you’re not a conservative by 30 you have no brain.” Or you’re spending too much time watching TV.
If we must confiscate profits from a legitimate business, how about using the proceeds to give voting, tax paying citizens an education in basic economics. How about reforming Social Security so we all own stock in big oil. Oh, then we wouldn’t need a demagog like Obama to decide how big a hand-out will buy our votes.
Nuclear, solar, etc. will get us off the foreign/carbon dependency in the long run; but we still need domestic drilling to fill the short term. Let’s get started.
Let’s see. Gas gets us to work, school, the grocery store, to hospitals, theaters, family members homes, shopping, and numerous other journeys. Seems to me they do something for the money.
The government seems to be raking in a hell of a profit too….and Bart isn’t upset by this? Bart? Are you richer because your liberal government who wants to impose more taxes on oil, and raise prices even farther, by adding more tax per gallon….making you rich? Don’t begrudge these companies , begrudge a free for all spending government.
By the way……doesn’t Al Gore own interest in oil? For shaaaaaaaame.
Apparently the moderator found something untoward in my last offering so I’ll try again.
Anyone who thinks the oil companies don’t earn their money needs to take a shovel and go out into a field somewhere in Oklahoma, Texas, etc., and start digging until they run across some crude, carry it back to their house in buckets and refine it in their garage. Oil companies do not reap windfall profits. They make a rather modest return (8 to 10 per cent). In my small business, if I achieved as LITTLE as twice that return I couldn’t make ends meet. Does that mean Obama wants to tax my business? After all, my profit, stated as a per centage of sales, far exceeds ten per cent. My guess is…YOU BET HE DOES! And every other business including yours, or the one you work for. And if 8 to 10 per cent is the standard for determining windfall, you’d all better start downgrading your 401K’s and stock portfolios.
Here’s what would happen if he did tax my “windfall.” I’d simply raise my prices to cover the new expense. My three hundred or so customers would bear the burden of the tax–AS THEY (THE CUSTOMERS) ALWAYS DO! And if I can figure this out with less than two years of college, those oil company execs will be all over it.
Obama says he wants to give a rebate of $1000 to every American family to offset energy costs, said rebate to be funded by his ‘Windfall Profit Tax.’
1) $1000 would pay my energy related bills for about five WEEKS in the summer, more like three
and a half in the winter. In return for my month of energy bills being paid, I’ll pay more for the
energy I use and I’ll pay more for a LONG, LONG TIME!!!! BECAUSE…
2) When those $1000 checks have all cleared the bank, I’m sure the DEMS will go ahead and
rush legislation through congress repealing the ‘Windfall Tax’ and Obama will sign it the
moment it hits his desk. NOT! That $1000 is bait to get the American people to sell their souls
to the Left. After that, the money will be distributed to those who hate us, to the lazy, the
irresponsible, and the illegal. And we, that’s YOU and ME, will continue paying for those
subsidies every time we go to the pump, or pay our gas and electric bills.
Neither God nor any responsible moderator will allow me to post the language necessary to adequately communicate how BAD an idea this is for America, or how bad Obama, or any other Left Wing candidate will be for America and her future, if they get elected.
E1701,
You obviously are one of the few who truly understands how things work.
Ever thought of running for office…we could use some intelligence in our government.
Thanks for the refreshing post.
The day Politicians decide different tax treatment for different industries is a sad day for America. Who are they to say what is fair or unfair? The market will determine that. That’s the America I want to live in. This group of Socialists is going to ruin this great country. First they’ll decide what a fair profit is, then they decide who the market participants are and finally they’ll decide how much the consumer will purchase. This is scary……………
To Bart and others like him:
“Windfall profits are those profits made when a compa