Monday, April 07, 2008

But, but, but ... they're greedy!

Whole bunch of folks who ought to know better (ie. politicans) are whinging and moaning about oil companies these days.

Seems that a whole bunch of our elected Congresscritters think that oil companies making a profit is somehow eeee-vil, and by Vishnu they oughta pay higher taxes!

You know, the whole wealth redistribution thing.

Well, being an oilfield brat meownself, seems I remember a study going around a couple of years back about who actually makes a killing in the old oil-field profit business -- and Google is Our Friend.

Between 1977 and 2004 -- adjusting for inflation -- American Oil made a profit of somewhere in the neighborhood of 643 billion dollars.

Over the same period of time (1977 - 2004) -- and adjusting for inflation -- tax revenues on the same product was somewhere in the neighborhood of 1.34 trillion dollars.

Allow me to repeat the salient points:

Oil company profits -- 643 billion

Tax revenue collected by the Government on gasoline -- 1.34 trillion.

Goodness.

So, let me get this straight ... oil companies making 643 billion on oil Is Bad.

The Government making Twice That Amount in taxes on the same stuff ... Is Okay.

You know, I'm an old fashioned kind of guy. Since the various State and Federal Governments are hitting the consumers for Twice The Amount of dosh that the oil companies are hitting us for, I figure any crimp on the oil companies ought to be matched 2-for-1 by the Government.

The Government hits the oil companies for 200 billion of those companies own profits, then the Gummint should have to slash the gasoline taxes by twice that amount.

Only fair.

LawDog

26 comments:

CSStock said...

The oil companies profits are immense to be sure, but it is the federal, state, and your local taxes that make it so painful to purchase.

The percentage of profit made from a gallon sold is minuscule...much less than profit made by the manufacturers of my Nike running shoes.

nurf said...

Econ 101: businesses don't pay tax-- their customers do. If the Gubment levies an "excess profit" tax on oil companies (as HRC has proposed) the cost will simply be transferred to the pump. But the Dems are hell bent on more money and more control so they don't give a d*mn if their tax increases make your life harder.

And BTW, exactly what is the "correct" profit margin for THE NUMBER ONE TRADED/NEEDED PRODUCT ON THE PLANET?!!! And who decides what is excess? And which industries should be penalized? Coffee is the #2 product in the world-- should the government have the power to try to manipulate their profit margins as well? This is nothing butt blatant Socialist/Communist engineering IMO. (fairtax.org please!! it's not perfect butt it's a d*mn sight better than what we have now!)

Seems to me that darn near everything we humans do these days relies on oil @ some point in distribution and/or manufacturing, so it shouldn't come as any great surprise that there's big money in oil. If you want to reduce the price you MUST increase competition (another Econ. 101 lesson that few on the Left seem to want to understand). To that end, I suggest banning OPEC (and any other price fixing organizations), then start looking for more diversified sources of oil and other NRG sources. Finally, force all High School students to take an Economics class and read Atlas Shrugged. (the audiobook is great if you don't want to slog thru that giant book- check your local library.)

There's my $.02.

Rogue Medic said...

This is just a way to raise taxes and make it appear that you are "saving money for the tax payers."

Populist ideas are only appealing to those who do not think.

X_LA_Native said...

And who decides what is excess?
THAT type of thinking had me grinding my teeth during the first Clinton administration and their arbitrary "$250 @ year for four years makes you RICH!" carp.

That's one of the greatest things about this country...should I come up with a great idea for a product or service, there's no limit to my ability to work it into a multi-million dollar enterprise. The only limit is my own ability and drive.

I'd like to say they should know better, but when the "smartest woman in the world" can't tell the difference between dodging questionable dining choices and sniper fire...
Gah! Carry 'em all out nekkid and start over.

X_LA_Native said...

::sigh::
The above should read: "$250K @ year for four years"

Legman688 said...

I'd be fine with the .gov making that kind of money off gas purchases if they were turning it around and funding research that would allow us to NOT be funding the same dickapes who are quite happy to murder us all in our beds.

Well, and buying the Air Force bombers.

I'm guessing that's not where most of it has gone.

Billll said...

Companies figure their profit on an after-tax basis, too, so to make 5% profit on a cost of $100, you charge $105, but if the government steps in and demands $20, then your cost is $120 and your price becomes $126 to generate the same 5% that the shareholders want, but your "profits" are now up 20% ($6 vs $5) and you get to go to Washington to provide campaign ad footage for congressmen whose constituents can't count.

Rogue Medic said...

When your profits are maintained at 5 % after the government has added their tax, is the volume of sales going to remain the same?

Will the company keep the 5 % markup, will they decrease it, or even increase it (the price is so high, what's another percent)?

With petroleum products we do see the price of gasoline apparently affecting demand at certain levels.

The economics of prices, supply and demand, and taxes is not as simple as the text books suggest, but overall things do work as expected.

Anonymous said...

And what taxing entity has to worry about another government (Russia, Venezuela, Zimbabwe which may or may not be a government at this point, but I digress) nationalizing its property at the loss of millions to billions of dollars, pounds, euros or whatever?
LittleRed1

Matt G said...

"Gouging" is a false concept.

If a product is not profitable to sell, then people will not go to all the R&D and effort to distribute it. In that case, you will have less entries in the market, which is bad for the consumer.

Clearly the price per gallon of gasoline is not "too much" because we are paying it. The phrase "all the market will bear" is a decent one, when considering profits. Really, the best check on prices is the other oil companies.

We WANT the oil companies to make a profit, so that they can do more and better R&D, which is what makes a better product, and eventually brings the relative price down.

The crunch is getting me, too. But curse not the darkness (market forces).

TBeck said...

But...but...those taxes are FOR THE CHILDREN!

In 1993, when asked about the effect her health care plan would have have upon small businessses, Hillary commented that she couldn't be responsible for every undercapitalized business out there.

That's an interesting definition of undercapitalized.

Now, the price of gas is clearly driving up the cost of goods purchased, regardless of what Dr. Bernanke believes. The real inflation rate, which we don't see because volatiles like food and fuel are thoughtfully excluded from the "core" inflation rate, is probably gonna be somewhere around 5% by the end of this year.

The gubmint could easily ameliorate this by sunsetting excise taxes on fuel, but then the 4.5% average annual growth that the DotGov has been experiencing over the last few years would come to a screeching halt.

So, Hillary can't be responsible for every undercapitalized household out there but you for damn sure are on the hook for all those under-funded federal programs.

Nice.

Lonestar Gal said...

Seems to me that at this particular point that I really don't give a darn WHO is making the most profits on the oil. All I know is; I work for a non-profit agency, ergo, small paycheck. Today, I needed gas and it was $3.35/gallon. That is frankly obscene. I generally consider myself a slightly conservative liberal. I am all about nature, and preserving the beauty in the world. But, we really need to open up the Alaskan Oil reserves!

Kirk said...

As I understand it, part of the reason for the higher prices is simple supply/demand- Anyone remember where the refineries are? There's a fair amount in the Tx/La gulf region, where there hasn't been any sort of weather activity that's not great for business. The price ought to come down a skosh when they get that refining capacity back to full speed, don't you think?

By the way, sorry if double posted, network problems.


But, no, of course not, it's because private industry is evil and naturally would eat our children if not strictly smother- I mean regulated by big government, isn't it?

Billll said...

One more thing: In 1972, one ounce of gold would buy about 30 gallons of gasoline. Today, that same ounce will buy about 300 gallons. Gasoline has actually gotten cheaper. The dollar, OTOH, has become nearly worthless.

Marvin said...

The government could slash of a dollars worth of taxes on the gallon, and still probably be making more money per gallon then they were in 2003. That single act would end the slump in the economy, thus leading to the government making more money off of income and sales taxes, thus making up for any shortfall.

Even if the government made less in revenue, they exist to serve the needs of the people, and right now the people need them to slash the taxes on gas.

Anonymous said...

When the price fell a bit recently, our refineries in the US actually cut production to maintain prices. That kind of decision makes good business sense, but it tends to irk people who are deciding which is more important: food and medicine, or gas to get to work with...

Some might also say it was good business sense to buy up a certain political party in the early 80's and use them to dictate energy policy, eleiminating development money to alternatives to one's primary products.

Good business sense has little to do with who gets hung from a utility pole with telephone wire some days.

Rick R. said...

Yes, refineries DID cut back production, when more refined fuel was available on the market than usual.

However, given that the environmentalists have forced the existing refineries to continually produce at "surge" demand levels (given the effective reduction in actual refinery output when compared to rise in demand the last 30 years), any excuse they get to cut back on production temporarily so they can get essential PMCS done actually contributes OVERALL to lower prices.

You want to REALLY stabilize gasoline prices without slashing the gas tax (as "cutting taxes" isn't something Congress knows how to spell, much less do)?

Eliminate the "Boutique Blend" phenomenon, where every little urban locality needs a slightly different mix to meet EPA and local air requirements. Having to produce so many unique blends of your basic two grades of gasoline (regular and high test -- the mid grade stuff is a blend) means that in the US gasoline market, there is exactly ZERO "efficiency of scale", and local shortages can really screw things up, since the gasoline blends aren’t "fungible". If the majority of gas for, say, San Francisco, gets hosed (production facility loss, etc.), you can’t just transfer over excess "Salt Lake City" production to even out the disruption.

Rogue Medic said...

marvin,

When we claim we know why someone did something, even if we are repeating what that person said was the reason, we get into a tricky area. People are rarely completely honest about their motives.

Maybe they did want to keep prices up? Maybe they saw that futures prices were trending up and felt the drop in prices was a temporary anomaly.

Maybe they anticipated that the time between Memorial Day and Labor Day would see increased demand this year. As it does every year.

Anticipating this, would you perform maintenance during a time when prices have dropped or wait until prices have risen again?

It is sensible to minimize your losses. One of the reasons for high gasoline prices is the difficulty in keeping refineries running. When the prices are high, they want to have 100% of the refineries running. Last year it was rare that the run rate was over 90%.

Taking refineries off line to raise prices only works in your favor if your competitors do the same thing.

This is one of the reasons that OPEC is no longer very powerful. There are a lot of non-OPEC countries that produce oil and the OPEC countries cheat.

JHardin said...

Lets cross our fingers that the Bakken Formation takes a lot of the wind out of OPEC's sails...

http://en.wikipedia.org/wiki/Bakken_Formation

Why drill in ANWR when Nebraska and Montana may have as much oil as Saudi Arabia?

Anonymous said...

Do you seriously think that such deep and difficult to recover resources will result in a lowering of fuel costs to consumers?

The cheap, easy, sweet crude in Iran, Iraq, the gulf states and Saudi are still the prize. Your tax dollars to the military are still going to subsidize our energy company's control of those resources for the foreseeable future. Oil costs us a LOT more than the price at the pump.

Rogue Medic said...

Oil does cost us far more than the price at the pump. With improved technology and higher prices, oil that might not have been worth going after becomes economical. The increased supply can have a stabilizing effect on prices - even if it does not result in lower prices.

world-wanderer said...

Fuel taxes in Europe are several times higher than here. That's what they want, to enforce conservation through higher costs from taxation.

They obviously can't raise taxes at the pump, so they raise the companies' taxes, and spout off about evils of capitalism.

Marvin said...

Saw a news story a couple weeks back about a huge surge in drilling operations up in the Dakotas. Seems that there is enough oil up there to solve our foreign dependency problem, but it hasn't been profitable to start going after it, to deep, until now. If Hillary punishes the oil companies, then might it not be profitable to go after this oil again, and thus prolong our problems. I know gas is never going back down, but this new drilling is our only hope to get it to stabilize.

Rogue Medic said...

Eventually, it will go back down. Probably not below $1, but commodity prices have their bubbles, too. Remember how it was in the 70's?

Then the oil companies will need subsidies to avoid being bought out.

J.R.Shirley said...

Oh...damn. Evil big business. (Eviler government?)

Anonymous said...

LawDog your daddy did'nt teach you nothin dude !! Everyone know's you have to pull your pants down to count to 11. Geez.