June 13, 2008 9:32AM
How a Windfall Oil Profits Tax Would Hurt You
By Elizabeth MacDonald
We are witnessing a fresh round of stiff-necked fulminations over the need for a new windfall tax on oil profits from elected officials who appear to understand little about the economic impact their legislation has on US taxpayers.
A growing number of Congressmen want to enact a windfall profits tax to punish what they say are greedy gougers in the oil industry. Though the Senate just rejected a proposed windfall tax of 25% on “unreasonable” profits of the five big oil majors, Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), ConocoPhilips (COP), Dutch-based Royal Dutch Shell (RDS-B) and British-based BP, (BP), it’s not off the table.
Democratic presidential candidate Barack Obama is now exploiting anxiety over high gas prices by pledging to enact a windfall profits tax on U.S. oil companies if elected.
If you hear a false note from this proposal clanging in your ear, listen to it, because short-sighted thinking, cant and pretense is coming fast and thick here, thicker than the oil Venezuela produces.
Yes, several energy chief executives are too richly compensated, earning them the ignominious title of fat cat CEOs.
Yes, the oil majors could do a better job of digging out new sources of energy to ease the dependence not just on oil but foreign governments hostile to the US.
And, yes, oil companies have been reckless with numerous tanker spills, ruining pristine environments around the world.
But that’s not the end of the story.
Oil companies don’t arbitrarily set their prices sky-high. Market forces determine oil prices. OPEC has a huge hand in setting prices.
Also, half of the world’s population is sheltered from fuel prices by subsidies, which has boosted demand and kept oil prices high.
Drivers can get gas for cents on the dollar in Venezuela, China and Iran. Indonesia, Taiwan and Sri Lanka are now cutting subsidies. China is considering doing so, too. At the same time, China is reportedly stockpiling oil, gas and diesel so as not to endure any embarrassing shortages during this summer’s Beijing Olympics. Its earthquake increased demand, too.
And the truth is, a stronger dollar would lower oil prices. Actions by the Federal Reserve to strengthen the dollar will help. The Fed has weakened the dollar which has helped cause oil prices to spike, as oil is priced in dollars.
Oil prices really started to soar just around the same time the Fed started opening the spigots last August to pump liquidity into the markets to save the financial sector, our sister publication, the Wall Street Journal, notes.
The last time the price of oil in dollars and in euros was at parity, exactly the same, was at 25 in 2002, says David King, former head of the New York Federal Reserve’s Industrial Economies division. Since then oil in euros has tripled in price–but it has quintupled in dollars since then, notes King. What does that tell you about tighter monetary management at the European central bank and the US Federal Reserve?
As the Fed cut rates, the treasury bonds that are usually the preferred investment vehicle of choice for pension funds and endowments no longer could keep pace with inflation so investors plowed into oil. Paper barrels in the form of speculators grew due to this phenomenon.
But if speculators were solely to blame for high oil prices, you might see a sizable increase in oil inventories, or at least levels suitable for world demand, as one analysis notes. There is no evidence of that. The stampede into commodities index funds, after the crash and burn of financials, has those indices now at $225bn, but that’s still far less than the tens of trillions of dollars worth of transactions in oil markets each year.
Finally, just the mere tough talk of a stronger dollar from the Treasury Secretary and Fed chair Ben Bernanke has helped ease oil prices.
That helps, because already on an annualized basis, if you math out the oil spike since the beginning of the year, the extra $135 bn cost to the U.S. economy from higher oil prices has vaporized the fiscal stimulus checks the government approved.
To be sure, the higher oil hit won’t come all at once, but it’s a slow bleed that will sap the economic growth the federal government had hoped would come from the checks.
Congress, the media and presidential contenders also don’t know how to read a profit and loss statement as they zoom in on the oil majors’ revenue line item alone, ignoring the other important moving parts in the financials.
For instance, the oil majors get drilled for hauling in rich sales, but Congress and presidential contenders focus only on that line. They should focus on the costs to bring in those sales, reflected in profit margins.
To get a profit margin, you divide net profits (which includes costs) by the amount of revenue the company took in. The average net profit margin for the S&P Energy sector, according to figures from Thomson, is 9.7%, one report shows.
The average for the S&P 500 is about 8.5%. Not much of a difference. Johnson and Johnson has routinely showed profit margins of about 20%, same for the financials before they got socked due to their bad bets in the housing and credit crisis.
But here’s an important economic point. Companies don’t pay taxes. Instead, they pass tax costs along to workers, consumers and shareholders. Or they pull stakes and move operations out of the country. Why do you think the US accounting firms have been steadily growing their operations overseas? It’s because of the US’s onerous tax and regulatory structure.
Besides, who reaps the windfall from a windfall profits tax? The government, whose elected officials then use that money to buy more votes with pork. I can assure you, despite the lip service paid to cutting the deficit, cutting the deficit would be last on the list once the revenues from a windfall profit tax comes in, because there will always be talk of more taxes, more spending, more pork to be found to preserve power, more regulation to control our lives.
More, more, more to keep our teetering, Supersize-me government going.
Yes, the oil majors get a lot in the way of tax subsidies. So do plenty of other sectors in the US economy, notably the ethanol and drug industries.
And oil companies pay a lot of money in taxes to the government.
Over the last three years, Exxon Mobil has paid an average of $27 bn annually in taxes, says Mark J. Perry. a professor of economics and finance at the University of Michigan. That’s as much in taxes annually as the entire bottom 50% of individual taxpayers paid in 2004 (most recent year available), which is 65,000,000 people, Perry notes.
Exxon’s effective tax rate in some years is at around 40%, bouncing down to a still steep 35% in other periods.
The combined top federal, state, and local corporate tax rate in the United States is 39.3%, the second highest (after Japan) among the 30 countries of the Organization for Economic Cooperation.
Even the socialist, welfare-state-loving Scandinavian countries–Sweden, Denmark, and Norway–have a combined average corporate income tax rate that is more than 11 percentage points below the U.S. corporate tax rate.
So what the government giveth in subsidies, it quickly takes away with taxes.
Also, the Tax Foundation’s Scott Hodge and Jonathan Williams noted say that in recent decades federal, state and local governments “have collected far more revenue from gasoline taxes [from consumers] than the largest U.S. oil companies have collectively earned in domestic profits.”
The Congress has threatened a windfall profits tax since 2005. Back then, more than 250 economists sent their concerns to Congress in an open letter, with signers including two Nobel Laureates in economics, as well as professors from the University of Chicago to Princeton University and Harvard Business School.
They cited a Congressional Research Service report about the results of a windfall profits tax imposed in the 1980s, which noted a windfall profits tax would mean less gasoline available to Americans. The CRS found that the previous tax led to decreased domestic oil production and increased reliance on foreign sources–-the opposite of widely accepted goals for U.S. energy policy.
And a 22-country study from the conservative American Enterprise Institute found that higher corporate tax rates lead to lower wages, with a 1% increase in corporate tax rates associated with a 0.7 to 0.9% drop in wage rates.
“Lower corporate taxes will lead to higher wages over time,” says Kevin Hassett, a coauthor of the study.
The oil boom is creating jobs that could be lost overseas if a windfall profit tax is enacted. One analysis I just read says that according to annual reports for the largest 25 energy companies in the S&P 500, 20 oil firms had more employees at the end of last year than they did at the end of 2006.
Average weekly wages for non-supervisory workers in the natural resources and mining industry (which includes oil and gas extraction workers) were nearly 70% higher than the national average, this analysis says.
Is anyone in Congress listening? And is Senator Obama listening too?
Comment by DrDetroit
Jun 13th, 2008 at 10:11 am
Nice to see another MacDonald article here-
from Article:
Finally, just the mere tough talk of a stronger dollar from the Treasury Secretary and Fed chair Ben Bernanke has helped ease oil prices.
I might call the stimulus package an advanced unemployment check - for, if you worked, you paid taxes and might qualify, if you didn’t work you won’t be getting any check.
I think Jobs are more critical to the Fed and Treasury right now than the dollar. We’re riding on fumes, some people - literally - on their way to work, or in some cases, on their last DAY to work as they simply didn’t make it to work if they commute far enough at a low enough income.
If that cycle breaks, consumer spending will be in critical shape, at which point, recession will be the least of peoples worries.
Sure, lower corporate taxes, providing greedy CEO’s don’t suck up 50 million a year and 25 more in retirement deals - exploiting the gains from lower taxes ? sure that could work.
It’s tricky to motivate employees to become better employees - and it’s also tricky to motivate businesses to become better businesses and not seek unrealistic profits for the top ’super’ senior executives thinking at the LEAST, they must receive 7 figures per year to start.
I share in the idealism of lowering corporate taxes IF a business doesn’t lose focus on growth.
I prefer to keep out of petro in general, I fish upstream, in the unpolluted waters from petro that is - I KNOW it’s no solution for transportation “lookey Eugene, it burns and blows up real good” ? 10 years in 1910 MAYBE, 100 years ? no, and it’s a crime that we had leaded gasoline for so long, perhaps a crime we didn’t educate ourselves on the dangers.
I used to bicycle a LOT, and there is NOTHING like riding along, maybe up a hill, and a car comes by and WHAM - seems they just didn’t fix that catalytic converter - or maybe diesel - which has been shown MANY times over to be extremely harmful to childrens lungs AND adults.
The AMA says that children who live within 500 yards of a highway have a 2x chance of having asthma the rest of their life. THAT ALONE should be enough for ANY sane person to say - uh, this is NO solution, at ANY cost.
I would observe pulling electricity off the grid from coal is no better solution either. I’m a fan of helium 3 - so is China, Russia, Japan and India, all 4 have stated this is their future in energy - it’s just 10 + years away. China is already getting their gear together to harvest it. And with China’s coal - where I read that China’s pollution shows up in L.A. ? Really needs an alternative fuel - for wind patterns know nor follow any nation state idealistic boundaries.
People talk about the dollar, but in reality, the dollar does not stand alone, my view is we don’t live in a Bretton Woods world anymore where it’s right after World War II - even IF Fox runs Ollie North trying to bring people back to that mentality- if anything emotionally (for whatever propaganda purposes I suppose). Sec. Treasury Paulson didn’t just come back from Saudi Arabia to ask how they afforded to pay for that gift of a bicycle they gave Bush when he visited (was that sarcasm ? ) He went to validate they’re not unpegging from the Dollar. Bretton Woods world is gone. No US military might can bring it back, even if the US were to invent an enemy, it can’t bring Bretton Woods back - there are more Euro’s in circulation than US Dollars right now.
Alan Greenspan points out it’s a global economy, I witness basket currencies as the sane view - it’s not unlike a bundle of sub prime loans I SUPPOSE with zero transparency, but it IS a sane way to get past the division Bretton Woods brought to the economies in the world (note, I won’t use global economy in post WW II era).
If you ask me, when the Fed quietly moved Special Drawing Rights over to paper in Feb. 2008 - it was a sign of a TRUE transition from a Bretton Woods world.
I think Paulson is nervous because he’s trying to hold things together during what should be a serious transitionary stage for the US AND other nation states in the nearer than further future. I think Bernanke as well - is aware of Paulson’s problems that will unravel the day Abu Dhabi or say Saudi Arabia announces they are unpegging.
That’s a bigger upstream issue if you ask me. The irony is - these are two Petro nations - which will serve to suffer greatly when helium 3 shows up on the scene from China, Russia, Japan and India.
If I could encourage a catalyst for a better world, I’d move to natural gas temporarily over coal (mercury problems) and petro (too many particulates to begin) - drop the entire ‘America holds dibbs on democracy and must be the forebearer to all nations, even though democracy is a time tested ideal all the way back to Rome’ Iraqi venture - and place that 1 + Trillion into a proper transition to - again, what China, India, Russia AND Japan have ALL said WILL be their future in energy solutions, helium 3.
I’m not off my rocker on H3 - it’s 99.9 % clean fusion, Univ. of Wisconsin has a working reactor, The sun produces it as a by product, and you know ? For once, I’ll say - Go China- because China is the furthest along in their space program to harvest it.
Sure electricity will be metered - it’s estimated the equiv. cost of petro vs helium 3 is about about $20 a barrel, that’s WITH our inflation. With these energy resources - we should be able to fix a lot of problems - heck, we could even remove co2 if it was truly a causal factor in why all this ice is melting - I never argue WHY it’s melting, I just argue it’s melting - which is a fact. Once you keep focus on that, you can dislodge the ‘global warming is a myth’ argument, simply say “I don’t know about global warming, I just want to talk about this ice that’s melting”.
In the meantime, back to earth - Sure, petro is a temporary problem in the markets as well as what exhaust enters the lungs of children, the elderly - and anyone else.
To me - I’m with Jacob Needleman, money is a tool, a utility, a means, NOT an end. Denial of potential for health is far far worse than $1000 a barrel oil, or even $1 barrel oil. I prefer to argue, if anyone thinks petro exhaust is a fine by product of current transportation solutions, you’re more than welcome to go breath in some exhaust - I don’t really want to see anyone do that but ? you know ? kind of like a neighbor burning plastic as your spouse gets lung cancer - it’s hard to control them, I suppose you can move, often it’s too late.
People need to stop buying into nationalism so much, and this fragmented currency model only to have to use basket currency measures to ‘fix it’, David Bohm points out nationalism is a fragmentary thinking system - it is. People would be better off finding a unity in species (I might argue even THAT brings problems, e.g. humanism), atleast unity is species would be a step up from division on nationalism, gender and race.
In the meantime, maybe the best solution is to self-educate and move from petro as best as you can - from all investments, and well ? you know ? I see these solar panels - 2 feet x 4 to 5 feet - $6000 a piece, each one generates 1400 watts.
I think to myself, now, why couldn’t I get an electric car, slap one of THOSE on the roof - I mean, sheesh, 1400 watts ? that thing should charge enough to drive around town in a DAY or so ? and THAT - sure - would cost me $6000 + the car BUT… ZERO Petro- I wouldn’t have to feel like a schmuck when I drive past someone with a baby carriage thinking, ouch - this just isn’t right as I KNOW exhaust is left behind. THAT is no way to live, nor is it any way to force someone else to live.
We can do better than petro people.
we can do better than the US Dollar too.
We’re human beings - aren’t we ?
Comment by DrDetroit
Jun 13th, 2008 at 10:20 am
Most peculiar - perhaps unconscious in the article above is the use of WIND (fall)-
On the flip side, I did learn the latin Fulminare from this article- ‘to strike (as in lightning)’ as I had to look up ‘fulmination’ - one thing for sure - the Ancient Greeks must have one heck of a winning thinking system such that our medical terminology can stem from it without much need for any new words- and the Romans with Latin as well - that our biology and law can inherit so well without need for changes.
I wonder what elements from our culture might be worthy of holding water 2000 revolutions around the sun later ?
Let’s hope it’s not nuclear weapons !
or fission - sheesh.
Comment by Cryos
Jun 13th, 2008 at 11:48 am
Thank you for the article. Very informative and to the point. I hope that an increasing number of people see the logic in the figures like in this article and recognize the failure that windfall profits would bring. In my opinion it is a political manipulation to appear to “be tough on Big Oil and big business protecting the American consumer” and exploit the economy to pursue socialism.
Comment by Ted Sherman
Jun 13th, 2008 at 12:24 pm
It is a shame that people like Shepard Smith or Bill O’Reilly doesn’t ask you to comment on the high price of gas. Oh yes thats right he has a far more socialistic view of this. I would like to see you, Newt Gingrich, some like minded congresspersons (have to be politically correct), Eric Bolling, and Charles Payne to block out time on television say two hours and list all of the issues that go into the price of oil and list recommendations on how to fix it or how to control it.
Love your articles keep up the good work. Do you need an assistant? (lol)
Comment by michael k
Jun 13th, 2008 at 12:26 pm
Of course very few in Congress are listening. As you point out, they are largely concerned with staying in power once they are in. They accomplish this with thousands of legislative “earmarks for pork barrel projects in their home districts that are funded without open debate or regard for fiscal responsibility. Recent attempts by Congress to limit pork, such as the ammendment to the Senate’s 2009 budget act”, which would have put a one year moratorium on earmarks, failed miserably. Earlier attempts T(the Pork Barrel Reduction Act and the Legislative Transparency and Accountability Act of 2006), had enough loopholes written in to be all but meaningless, and still failed to pass. John McCain has been a vocal critic of earmarks, and if he is elected president, it will be interesting to see if he can reign in the wild spending spree in Congress.
Comment by Rob Stalcup
Jun 13th, 2008 at 1:04 pm
To say that the price of oil is not being jammed by the speculators is ubsurd. How can the price of oil double in one year. Reminds me of the dot com BS in 01. Looks to me like the working man is caught again.
Rob
Comment by alan
Jun 13th, 2008 at 1:05 pm
Elizabeth,
While I read your article I must thank you for being more informative than most.
One thing that I feel is that the news media in general is talking regarding the oil story and no one, to my knowledge, has not answered the following in an in-depth manner. It may make a good series.
What is the actual, complete oil production process…..from ground to gas tank, (please give me credit if you use this by-line, I just thought of it and kinda like it )_
I am amazed that more people are not outraged at a 60 cent rise in the last month on a gallon of gas. Not to mention the overall price increases.
I understand that China and other countries industrializing are a factor, as is the production amount, as is the hedge funds and futures people. If someone did a story on how a gallon of gas gets from the ground, through the process, into finished gas I put in my car, I think you might accomplish really and truly informing the American public.
Thanks for your time
Comment by welch
Jun 13th, 2008 at 1:49 pm
Outstanding! Wish more of our lawmakers and policy givers would take note at what the market is saying. If we really want to help, sign the drill here drill now petition. And, stop subsidies to the EU!
W
Comment by Johannes Dumarey
Jun 13th, 2008 at 2:05 pm
Dear Elizabeth,
I am a small business owner myself, and there’s one thing about the oil companies record profits that puzzles me in the current environment :
Crude oil is a raw material for oil companies that they need to purchase, and is a very important part of their cost-base.
So, if the price of crude oil goes up, their costs increase, which means their profit margins should come down, no ?
The only way that that hey can increase their profit is by increasing their selling price of the refined product more than the increase the crude oil.
That’s how it works for my business anyhow.
Simple question : where do their record profits come from then ?
Johannes
Belgium
Comment by Kevin
Jun 13th, 2008 at 2:23 pm
If drivers in China can purchase gasoline for cents on the dollar due to subsidies as you state in your article, how come gasoline translated to roughly US$3.50 per gallon when I visited China in May 2008? Is what you claim factual or similar to the the words that fall from politicians mouths?
Don’t get me wrong as I agree with the majority of your piece. It really just strikes me as odd that the gasoline prices I saw in China in May 2008 seemed to mirror the prices seen at the pump in the US around the same time. Market forces?
Comment by DrDetroit
Jun 13th, 2008 at 2:23 pm
I forgot to distill the article and respond…
The nation was birthed in part due to taxation without representation. So tea to oil, I suppose there exists a connection. Many people feel as disconnected to Washington D.C. politicians as I gather early residents felt distant from England on taxation policies.
I agree on taxing corporations LESS in that - yes - it will end up likely costing a job or a limit in in spending, but wait a second here as I reason mid-sentence…
Companies can seek credit though to gain access to any money, and the question is whether the company can be profitable within the margin of taxation ?
Perhaps it’s fairer to tax only the consumer and never the employer ?
All in all money is given value through the same means words are. Shared meaning IS culture at the end of the day, language and money are both forms of culture.
It’s enough perhaps that people even agree that words mean anything - even in a bar room brawl ? yes, two parties are agreeing on something without even recognizing that, and even with currency, the same.
So perhaps it’s enough that people can even get together to believe that the currency is worth anything. Jacob Needleman points out money and the meaning of money is derived from a common shared faith and belief, nothing more. How fragile that is eh ?
I suppose taxation rides on that faith. I mean, the Federal government is unable to act as a corporation and seek to generate profits or go bust right ? Is it right or just that the Federal Government should parasite off existing corporations and citizens for taxation purposes ?
I’ve considered this at times - being that a successful administration should derive its own profits.
I do know this, people play that powerball lotto and it amazes me how quickly 250 million can be amassed. If only big government worked like that. You know ? Education is up, everyone buy your tickets, and everyone would win as the money would be spent across the board. Perhaps I’m suggesting voluntary taxation flat out, citizen and corporate. Problems exist with nationalism. For Who should a nation state pay taxes to ? World Bank ? There is no centrality above the node of nation state, formally. Economically there does exist the IMF, and in the 1950’s the ITO (International Trade Organization) was attempted, but failed. We HAD the World Trade Center - but Dubai has announced it wants to be the new ‘world’ trade center, I’m not sure how that will work out once petro is put in its place in respect to childrens health.
A windfall tax on oil would hmmm let’s see… Oil companies would be encouraged to go off shore (no pun intended) - literally.
Oil companies would HAVE to pass that tax onto the consumer.
I’m not sure the US federal government has any business taxing the oil companies unless it can be argued it’s a health tax for the damage they are causing, but you’d have to prove the oil was used for burning with an open ended exhaust system, and THEN get the AMA in to back that statement about kids who live within 500 yards of a highway having 2x the rate of asthma - it’d be complicated.
I just want to see petro gone in the shorter than longer term.
In the meantime ? Taxation on petro companies will encourage them to move offshore.
I don’t get anyone who says - drill locally - the price is set globally.
I watched the CEO’s of all the big oil companies on C-span post Katrina, they made a good argument that the oil prices were not gauging, they were set by global demand.
so local drilling just means local profits, period, oil won’t budge whether it comes from the US or Saudi Arabia, on that Chuck Norris should go back to unrealistic movies where power and force are used to solve problems that might otherwise be solved through diplomacy. I’d hate to translate one of his movies to US middle eastern policy, oh wait, never mind, Bush already did. Kind of like O’reilly when he gets angry, he uses power and force, screaming, kind of an acoustic ’shock and awe’. Oh well - enough on power and force, O’reilly, Norris and Bush admin foreign policy.
Should the US Fed gov use force to tax the oil companies ?
They’ll move.
if Halliburton can relocate headquarters to Dubai, so can Exxon.
The entire subject though is like Jesse Jackson’s game show on Saturday Night Live decades ago - called ‘Moot’ when contestants would ask a question and he’d interfere and go ‘I’m sorry, the answer is MOOT’ and cu tthem off.
Petro is a dead end solution.
It doesn’t burn clean.
Natural Gas is probably the only clean energy solution we have until transition to helium 3.
If helium 3 is such a crazy idea ? Why has halliburton been acquiring patents on h3 reactor technology since the late 90’s ?
Why did Hallburton announce it’s entering the space craft sector 1 year before bush announced “We’re goin’ to the moon to better humanity” ?
Odd - China, India, Russia and Japan all say they’re going to the moon - China VERY soon - but odd indeed, they all say for one reason, the helium 3.
Just yesterday I see NASA unveiled its new lunar surface exploration craft.
Anyone catch that ? Funny, there is NASA yesterday - without permission from Cheney- stating ‘oh yes, helium 3 is there’.
approx 23 tons of h3 can power the entire US energy grid for one year.
that’s not bad when you consider the costs in consolidating that into liquid form and bringing it back, the reactor technology is here, and it’s clean, VERY clean - cleaner than Larry Craig’s fission revival attempts.
So, in so many ways ? I really don’t care whether petro is taxed or not, the great irresponsibility is in part on the consumer that we still burn it for transportation, let it fly out the exhaust pipe and care not, OR that Clamped / Desertley Hillbilly esque companies into oil drilling just say ‘Well now, it comes out of the ground, why would we want to stop a 500 million a day operation ? ‘
More important than petro taxes in my view is a matter of conscience on use of petro at all to begin with.
I like to call that fishing up stream.
I’m fine that most people will respond saying DrDetroit - you’re a loon, but helium 3 is a real shot at global energy and health related issues to global energy being resolved all at the same time as bringing an affordable energy solution to the table of humanity. I really want to keep my eye on that ball - nothing else in my view offers this potential. Geothermal is always my favorite solution locally - you’re REALLY tapping gravity and the friction from the earth’s orbit to the sun I suppose. Wind, same thing, you’re pulling from gravity - only more so the rotational features of the planet’s gravitational relationship to the sun.
TECHNICALLY, Oil to is from the sun, then again, isn’t everything ?
When they go BOOM, of the 3 types of stars, one type is responsible for most matter in the period table.
The Egyptians had it goin’ on, worship the sun - hey, if you need some teleological commitment to god on a causal factor as to where suns come from - fine - they probably covered that too !
Don’t forget now that the Bush admin finally came out two weeks ago in their 3 year late climate report stating ‘oh yeah, that global warming thingy, yeah, that’s real, sorry bout the delay - uh, mm hmm - yeah, petro contribute, yep’
I wager that report was held off until the VERY last minute to exploit oil and oil futures.
Odd no major media networks covered the Bush Admin’s climate report and that it stated two fold - validated the term ‘global warming’ and also stated petro is in part at cause for rising temperatures. How bizarre.
The REAL tax from Petro has nothing to do with money I suppose- that’s my point.
Comment by stan
Jun 13th, 2008 at 3:21 pm
With our falling US dollar, GAS SURE MUST BE CHEAP USING THE EURO.
Comment by HeckSpawn
Jun 13th, 2008 at 3:23 pm
Why bother taxing the oil companies who are just the middle-men. Let’s tax the Saudis instead! They have deeper pockets anyway…
Comment by Dave
Jun 13th, 2008 at 4:29 pm
Strange that politicians keep going to the same whipping boy. Perhaps a windfall tax on George Soros, GOOGLE etc would be in order. Joe Sixpack does not realize that oil companies net is not out of line with other businesses. Because the companies are so large (they need to be to afford to takes expensive risks) it looks like big profits. Many small businesses make much better returns and no one would dream to punish them. Somewhere along the way, goverments lost their way (probably a left turn) and instead of doing governments job- protecting its citizens, making and enforcing laws , they decide that redistribution of wealth was their business.It amounts to publicly abusing people who work hard getting an education- take risks, work hard - and bestowing freebies on folks who did not apply themselves, took no risks, made no effort and bitched.Where is the Spirit of America- work hard and you can achieve. The country will soon be transformed from the home of the “Movers and Shakers” to the home for the Shirkers and Fakers”
Comment by Richard Clagett
Jun 13th, 2008 at 4:33 pm
I’m afraid that the average taxpaying citizen has little ability to influence the thinking of congress. The press has the most opportunity for this influcence by writing informative articles such as yours. The majority (in my opinion)of our representatives are only interested in getting reelected and dance to the tune of those who supply them the money to run. The idea of bringing many knowledgeable people together to get the best deal for the american people is just not in their interests. I need to find and donate to a PAC that has the taxpayers interest at heart, our representatives really aren’t doing the job!
Thanks for your expertise and informative articles.
Comment by Julie
Jun 13th, 2008 at 4:47 pm
Thank God someone out there still have some sense. It’s refreshing to read an article that explains what is happening, rather than speculating/guessing/hysterically reacting.
But that’s what you get when journalists are as poorly educated (read stupid) as the average American. They hit the desks with English degrees and then try to explain business to us. They don’t have the background to understand this, and they aren’t making any effort to educate themselves, either. That goes double for the politicians in the Beltway.
Comment by Bobby V. Luker
Jun 13th, 2008 at 5:26 pm
Good informative article, and correct to most peoples way of thinking. Yep, the Hillary and Obama types will push this to the fullest, they may not know economics, but they do know how to buy votes. Sadly, enough people will buy their incorrect bull to sell their vote to them, and most will get back in. If people would stop and think,, Obama,, Hillary, has been in the senate for a few years. Isn’t that where bills are introduced? where you can make a difference? In their years in office, they have done nothing, now they want us to believe they will if we make them president?
Comment by Josh
Jun 13th, 2008 at 5:30 pm
I wish NBC would invite you to Meet the Press on this issue. Though they wouldn’t allow such logic in a million years (no disrespect meant to the late Tim Russert). Or, for that matter, Bill needs to have you on the Factor.
Excellent editorial. I don’t know how it could be more clearly explained.
Thank you. Thank you for not blaming speculators for the whole “crisis”. Many people want to outlaw speculation, and tax the hell out of oil companies because of what they call obscene profits. Speculation is a key player in price stability. Speculators buy when prices are low (driving them up) and sell high (leveling or driving them back down). And profits are… business. Oil companies are in business to make their shareholders money. It’s the American way. I’m preaching to the choir.
Comment by Rob
Jun 13th, 2008 at 8:08 pm
Every American, really everyone outside of Cuba and other such nirvanas, can hedge the price of energy. Buy the stocks of the producers. Energy prices rise you win, prices drop you still win. Unless we end up with a tax-everything fiend as president. then we all loose no matter which way prices move. Simple.
Comment by Richard Stockman
Jun 13th, 2008 at 8:54 pm
As Ronald Reagan said, “Corporations don’t pay taxes; PEOPLE DO”.
Comment by Anon
Jun 14th, 2008 at 12:37 am
The oil boom is creating jobs that could be lost overseas if a windfall profit tax is enacted. ONE ANALYSIS I just read says that according to annual reports for the largest 25 energy companies in the S&P 500, 20 oil firms had more employees at the end of last year than they did at the end of 2006.
Wow, care to be a respectable writer and actually name the source?
Comment by DrDetroit
Jun 14th, 2008 at 2:25 am
To Alan above
I too am seeking to understand better the entire cycle.
I saw your comment Alan:
“What is the actual, complete oil production process…..from ground to gas tank, (please give me credit if you use this by-line, I just thought of it and kinda like it )_”
I can share that I did find for every gallon of oil, we get approx. 0.67 gallons of gas.
That’s a start.
Now with Exxon dropping out of the refinery process, or is it they are dropping out of the delivery and sales ? I suppose my estimates on transport costs and marketing might be higher than I anticipated.
Comment by Monty
Jun 14th, 2008 at 10:57 am
The real blame for high oil prices belongs to congress for not allowing drilling in ANWAR, off the coasts of California, Florida, and New Jersey. Anyone who understands economics 101 knows that taxing the only companies in our economy who can provide more oil supply will only lead to lower supply and higher prices.
Comment by Mike R.
Jun 14th, 2008 at 11:10 am
I agree with DrDetroit that it is nice to see another MacDonald article, but Doc your comment was nearly longer than the article itself. I know there is a lot to say on this subject, but whoa.
Also concur with Ted Sherman that Elizabeth MacDonald should get herself onto the O’Reilly Factor. It shouldn’t be hard to do as both work for Fox. If she could keep Bill from shouting her down it would be informative.
Excellent article. I look forward to more of your viewpoint. Thank you.
Comment by DrDetroit
Jun 14th, 2008 at 1:50 pm
Upon waking today-
I had an image of that latest Qatar Airline advertisement on TV, the one with the 5 star food services ? (Tickets MUST be $2500 and up). Then I thought about US Air stock at $2 a share.
Then it hit me - (and this article title is askew). First, this article is somewhat misleading. The REAL title should be - How Oil hurts you.
Sure - Qatar is more about liquid natural gas than oil, BUT - doing some simple math here ?
Saudi Arabia - let’s call it’s output of 9.x million barrels a day to 10 for easy math.
and Let’s shave oil down to $100 a barrel.
That’s 10 million x 100 = 1 Billion USD a day - for what ? some initial well investments and some oil workers to keep it going and trucks or pipeline costs- woo ho- beans.
That’s an EASY 900 Million + a day for total profit.
Now, keep in mind that Qatar again has a five star food service airline being advertised where US Air charges $2 for a bottle of water (probably IF they even decide to carry the water, as it weighs 8 lbs a gallon). Check this out.
This is what occurred to me upon waking today, and it’s crystal clear to me, and yet ? I’ve never considered it, nor have I read about it.
The REASON Saudi Arabia is becoming the world’s new financial center, and the reason Dubai skyline is surprassing New York Cities in the up coming years, and the REASON Dubai can afford an indoor ski resort in the desert, is the money from oil.
Now, why do these countries that - say King Saud commented on regarding how his people just 60 years ago were living in TENTS -rather HAPPY, without this bloodshed ? Why do these countries GET this near 1 Billion a day from US consumers POCKETS from their hard earned / labored HOURS to work for that money to buy gas with ?
Simple:
It’s the people like the Bush family, the local US oil companies that have lobbied - over and over to keep us, that’s right, KEEP US addicted to oil. Every alternative energy solution for non petro-based cars ? Why ? Puzzling, they just dissapear.
Some people argue - well the markets determine what wins and loses at the end of the day. Perhaps with oil futures so out of whack, this will almost GUARANTEE oil stays the #1 resource for transportation.
So the distilled thought here is that while US oil companies protected their greedy little redneck rigged money for nothing operations (US oil ventures), only thinking about THEIR profits, hey hey hey, Saudi Arabia played the same game, and at this point ? has ENOUGH money- well gee, I just read Abu Dhabi has some 2.x trillion (that X is what I forgot, but you know it’s the hundreds of billions place value holder there) to invest in the US. Abu Dhabi could buy 1/4 of the US homes in one chunk - and that’s at FACE value - not even foreclosure prices- IF they wanted. That’s big folks.
Where did they get that money ? and why ?
Because - US oil companies were SO interested in their TINY profits in comparison to the folks pumping out 9 to 10 million barrels a day ? they didn’t care, they ONLY cared about their OWN texas rigs or profits - because it was money for nothing.
And now ?
we all pay for this insolence.
This guy acting as president is a BIG player in the oil sector. If you go back and review Bush’s speeches, I have one I find peculiar. During ANWR, Bush got up and spoke about how since the 1960’s ANWR has been scoped for drilling - and get this, out of the blue - he starts up talking about these very complicated aspects of ’slant drilling’ and whatnot, I mean, he actually KNEW what he was talking about, and was VERY articulate about it, nothing like what we see normally. So, yes, he’s an oil man and you can add 1 + 1 I think.
Bottom line here folks, the US oil companies OWN interests in profits have ALLOWED Saudi Arabia, and United Arab Emirates to slowly suck up US citizen’s money at the pumps.
I think this is why we are in this dilemma where oil dependency now is costing the lower lower class potentially their potential to even GET to work at the moment, OR eat.
There is no other way to look at it. While the US companies held content with their meager profits, they enabled Saudi Arabia, Chavez, Abu Dhabi to become so powerful ? They really can just come in and buy anything they want in the US, probably including the presidency to ASSURE the oil consumption patterns continue. Wouldn’t you ? if you were criminally disconnected from the best interests of the children to be of the species as a whole ?
Comment by DrDetroit
Jun 14th, 2008 at 2:24 pm
How about this for an article:
“How adherence to an energy resource for transportation will harm our children’s health”
Hey, you know ? we’re JUST over 100 years of petro use. I think it’s fair game to start asking what are the long term health benefits of breathing in petro exhaust.
Platinum won’t fix it. Oddly NASA just commented on June 11th specifically about two resources on the moon, platinum and helium 3. If the oil companies had their way, they’d go all the way to the moon, to get platinum to further catalytic converter production all the while skipping the answer that IS going to replace petro.
Hey, if you had something pouring out of the ground that made you money ? let’s create a new term, a ‘money hole’ would you abandon it if you found it it wasn’t in the best interests of your grandchildrens health ? Or would you say - hey, I can really show up my neighbors for my lack of self esteem with a big car - a big home - big diamonds on the rings - and a big suit ? carrying out the western paradigm of self worth achieved through materialistic consumerism ?
It’s not hard to figure out people.
If US corporate interests (the ones that haven’t moved to Dubai yet, as Cheney’s Halliburton did move there) say ‘oil is profitable, and profits are all that matter ?’
Hey, when OTHER nations such as Saudi Arabia and United Arab Emirates OUTPRODUCE you in oil exports ? and start to even cut into your customers ? Hey, you asked for it.
When Saudi Arabia and UAE starts to take 1/6 or your base majority citizen’s INCOME earned through LABOR ? to pay for a dead end petro based transportation energy model ?
You asked for it.
As I’ve said, not that anyone can stand being in the same room with Sean (Penn) when he’s smokin’ like a chimney, but he does have a valid point, we deserve the government we get.
If you’re content with oil/petro lobbyists keeping YOU dependent on oil - only to have an oilman alleged president tell YOU that ‘the problem is, yer’ addicted to oil (AFTER he helps make SURE of that ? ) hey, suck it up America - You were complacent to allow US oil corporations take their redneck cheap 10 million a day profits all the while leaving giants like Saudi Arabia and UAE to move up to 1 BILLION a day - and you know what ?
we’re reaching a crossroads now - the crossroads US oil corporations were in denial about.
the crossroads where hard working US citizen’s money goes to pay for a SKI RESORT making SNOW FLAKES in the DESERT!
Good going - if you think voting in 2008 will change behind the scenes oil lobbying, think again, it’s ignorance and suffering until the grown ups with the shiny black shoes show up on this island of Lord of the Flies.
I’m going to stay on the beach and wait- and avoid the unnecessary wars over the conch - being the corporate media - I think a fine view of the stars tonight will be cathartic for me, likely for all my ancestors, and likely for all those to come forward.
For the smarter people in this world, we KNOW that fusion derived from the very canvas you stare at in the nighttime sky delivers all the energy we need. Let’s see - hmm - dig a hole in the ground - watch petro come up - “Lookey Leroy, it burns REEEEAL GOOD” OR explore through higher education advanced physics to promote a completely CLEAN energy solution through helium 3 using electrostatic over electromagnetic hmm… Gee, I doubt Bush could even SPELL Electrostatic or tell the difference between MIT’s plasma lab’s use of EM over Univ. of Wisconsin’s use of ES to deliver a WORKING H3 reactor.
Ignorance begets suffering.
Comment by Rakesh Saxena
Jun 15th, 2008 at 2:30 am
Obama Policy Alert: Oil at US$200-plus, and worse to follow
It is not clear whether Barack Obama’s economic advisors have all the facts at hand. But the proposition to subject oil majors to a windfall profits tax is founded, almost entirely, on the populist notion that unprecedented corporate profits deserve socialist treatment.
When considered in the case of Exxon, Shell, Chevron, Conoco and BP, that notion betrays a total lack of understanding of the operational history and structural uniqueness of today’s significant oil corporations. In the briefest of terms, unless rigid corporate governance standards are imposed on the timelines inherent in the exploration-to-exploitation process, any emergency measures in response to rising oil prices will be decisively counterproductive.
At the outset, however, Senator Obama needs to ascertain the facts. Do his advisors have any credible (audited) evidence that the oil producing countries actually produce approximately 85 million barrels a day? How much of the daily consumption of 87 million barrels is artificially created by huge oil price subsidies right across the emerging market spectrum, to include India and China? And, what percentage of the open positions in the energy futures markets are justifiable hedges, as opposed to margin-based speculative contracts? A visit to Barack Obama’s website is not rewarded by any specifics. Framing an energy policy without such specifics is a dangerous exercise.
Perhaps more importantly, Senator Obama’s proposition conflicts sharply with certain dominating strategic imperatives which shape the very essence of the capitalist system, imperatives driven by the desire to enhance shareholder value. Anybody who knows anything about the dynamics of oil will agree that price-related solutions should only be based on a superior understanding of big oil balance sheets and accompanying financial statements, particularly with respect to the calculation of oil reserves and the timelines along which more oil can, or will, be brought to the market. Given the dozens of oil discoveries in places like Central Asia and Africa over the previous two decades, there appears to be no shortage of oil in the ground, or under the sea. The question which any oil economist needs to answer is this: at what point in time will a specific quantum of exploitation (not exploration) by major oil corporations shift prices in favour of oil consumers?
What exactly will the windfall profits tax achieve? From a plain corporate perspective, the windfall tax should result in lower oil output, and lower budget allocations for exploration; in effect, higher oil prices, inevitably. The unintended consequence of the windfall profits tax are even more serious, since corporate decisions to place oil identification and extraction activity on slow-track must adversely impact the economy of numerous countries who are currently relying on limited or complete self-sufficiency in oil for sustained economic growth over this and the next decade. Yes, Senator Obama’s proposition is embedded with the threat of fundamentally damaging the global economy.
In fact, if the need of the hour is to curtail any further hike in crude oil prices, and prices for gas at American pumps, oil majors should be encouraged, even directed, by Congress to expedite the process of both upgrading reserves and exploiting those reserves. The windfall tax will achieve exactly the opposite.
All that said, Senator Obama’s advisors might just be in possession of certain facts which have not reached the public domain. If so, the time for disclosure is now, today, before voters begin to wonder why any rational person would challenge his windfall proposition.
Finally, it should be pointed out that there are no alternate energy initiatives which promise anything concrete, in terms of relief at the pump, in the foreseeable future. But if the energy revolution is indeed around the corner, let’s see it being drawn along a proven timeline, and let Senator Obama commit to that timeline./
Comment by Bill Bigley
Jun 16th, 2008 at 11:52 pm
Your article has not touched the issue, the crazy rise in the price of oil is caused by speculators such as Goldman Sakes and a loophole in the law created in 2000 by Wendy Gramm and supported by her husband which took away regulation that had served our country well this loop hole was pushed by Enron and even though Enron was prooved to be criminals as a company that law was never taken off the books. Wendy Gramm after she created that loophole moved to be on the board of Enron but because of her husbands power she didn’t go to jail with the rest of the rats. We should not give tax breaks to the oil company they don’t need aid to keep their business viable. We should not have windall tax on their profits if don’t allow them to create more refineries and drill in the US for oil and natural gas. But Exxon has made the decission not to build more refineries because they can make more money selling oil in Asia, which they are doing with oil from tha Alaskan pipeline. All that I have quoted is supported with facts if you are going to write an article please support facts not articles your network doesn’t support. We need truth not special interests.
Comment by Daniel Keeran
Jun 28th, 2008 at 1:43 am
Are people dying because of high grain prices caused by oil speculation? YES. There is a moral obligation to take the profit out with a higher tax on oil companies and speculation. Within 24 hours of annoucement, the price of oil would go down dramatically. If oil companies need money for exploration, the government can give them a rebate with accountability.