Friday, May 02, 2008

Windfall Profits?


OK, here it comes. Just yesterday I was bitching about nothing to write about and what happens...one flies down the pipe.

Profits Of Doom?

By INVESTOR'S BUSINESS DAILY | Posted Thursday, May 01, 2008 4:20 PM PT

Profits: Exxon Mobil's first-quarter earnings of $10.9 billion, up 17% from a year earlier, are stirring outrage in Washington. Some are calling such profits "obscene." What a sad lack of understanding of economics.


I said it a few times before, I kept hearing these whispers of "Windfall Profit Taxes" being imposed again. I had just started working in the oil industry when Jimmy Peanutbrain tried this back in the early '80's. It didn't work then and it won't work now. "The Congressional Research Service has analysed that the windfall profit tax brought in $80 billion in extra revenues for the United States government, which was far less than the projected $393 billion. Also, domestic oil production by oil producers was said to be lowered."

Case in point: Presidential candidate Hillary Clinton. Like her rival, Barack Obama, she's pushing a massive "windfall profit" tax on those "greedy" oil companies. "There is something seriously wrong with our economy when Exxon's record $11 billion in quarterly profits are seen as a disappointment by Wall Street," Clinton said Thursday. "This is truly Dick Cheney's wonderland."

No, what's seriously wrong is that politicians such as Clinton can cynically manipulate public opinion to enact disastrous policies.
[all emphasis: mine]

Believe me, it will be disastrous. They know what happened last time they tried this, so I'm fairly sure that if elected, they won't really push this too hard...either that, or they are insane. (They say insanity is doing the same thing over and over again and expecting different results.)

Our free-market economy is built on profit. Higher profits mean more jobs, higher incomes, more investment in equipment and people, higher standards of living. Yes, profits are the engine for all of this — and that includes the profits of "Big Oil."

By signaling that supply is scarce, higher profits encourage more production. Except, that is, when Congress through its inept lawmaking stands in the way. And that's the case now with the oil industry.Our free-market economy is built on profit. Higher profits mean more jobs, higher incomes, more investment in equipment and people, higher standards of living. Yes, profits are the engine for all of this — and that includes the profits of "Big Oil."

Congress seems almost constantly at war with the oil companies — slapping them with taxes and pillorying their CEOs while ignoring the fact that higher profits lead to more exploration, drilling and development.


Why is this? Having a domestic oil supply is what made this country grow and, over the last 100+ years, show the rest of the world what people can accomplished, given the means to develop an idea, manufacture it, and get it to a population spread over huge distances and still be worth the effort (profit).

If anyone is to blame for our current energy mess, it's Congress. At least 20 billion barrels of oil sit untapped in Alaska and another 30 billion lie offshore. Such sources that could help satisfy U.S. demand for years to come. Yet, Congress has put them out of bounds.


ANWAR has been blocked for years...because of the way oil was developed back in the 1890's. I've seen pictures of the "Old Downtown L.A. Oil Field" (where I started, see pic above), in a book, and the chapter's title was "Oil In The Streets Of Los Angeles". There where lakes of oil right next to the houses and wells gushing when brought in, but the industry doesn't work that way anymore.

At the price of oil, especially now-a-days, you don't just let that stuff just dump on the ground. The industry has really evolved over the last century and they understand and take (overly regulated) precautions so that doesn't happen any more.

Instead, Congress scapegoats oil profits. In reality, according to Ernst & Young, from 1992 to 2006 the U.S. oil industry spent $1.25 trillion on long-term investment vs. profits of $900 billion.

Truth is, oil industry profits are in line with the rest of American industry. In 2007, a record year, they earned 8.3 cents per dollar of sales. Beverage companies and cigarette makers, by contrast, earned 19.1 cents. Drug makers, 18.4 cents. Indeed, all manufacturers, 8.9 cents on average, made more than "Big Oil."


I know...I know, they've put extra ("sin") taxes on liquor and cigarettes, but did that "punish" the corporations for their perceived windfall profits....NO!! It only increased the consumers price of the product more. These taxes do not affect the profit of the company, just the amount you pay.

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

That's just poor policy, and even worse economics.


Oh. come on, give 'em a chance...They'll make this formula work this time.

NOTE: domestic oil output fell 8%

Due to this tax, for independents, it wasn't making money so they just shut it down.

Remember: Oil companies don't really pay "windfall profit" taxes, anyway. You do. Some 50 million Americans today own oil company stock, either directly or through 401(k)s and mutual funds. Don't be suckered: "Windfall profits" taxes come right out of your retirement account, not out of the oil industry's business.

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


As to the added tax, I covered that, however, did you notice that the taxes that they pay under the current system is up 334% in just four years.

Note: Those that were able restarted idled wells because they could make some money off producing. Nobody is going to pay $1.50 to deliver a commodity that you pay $1.00 for.

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


I've never understood how anyone that has held a job and had the slightest grasp of the cost to keep a company going and still get enough return to make the hours worth the effort, unless you're Union.

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


I'm all for getting us off dependency on Middle East, Venezuelan, Mexican, even Canadian oil. I favor Nuclear myself. If the Frogs can handle it, I think we can.

If we started drilling today, it would be almost 12 years for ANWAR to be producing. I bet we could build quit a few nuclear plants in that time frame.

If you want to keep paying $100+ per barrel for oil, I'm not going to complain, you've guaranteed my income.

8.3% profit...damn them.

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