Lets say you are an honest worker. Lets say you work hard and you end up being richer and wealthier than alot of folks out there. The government taxes you at a higher bracket. When the going gets tough and you managed to pull through this and your average common folk sees your story, their eyes are filled green with envy.
When the going gets really tough, every one sort of blames you for their plight. The government should be taxing you instead of them! You are the one that is taking advantage of the poor and living the rich life. More wealth distribution should occur!
Perhaps that is why Exxon Mobil faces the kind of testing situation they are in now. My good friend Adrian used to tell me that his circle of people (he works in aerospace industry) used to tell him that these oil companies deliberately jack up the prices of oil and its not because there is a shortage of it.
Whether you believe in peak oil or not, who makes the most profit out of high oil prices? I believe its not Exxon but the government.
It pretty much looks to me like Exxon is like Petronas which is essentially state run!
This is one strange debate the candidates are having on energy policy. With gas prices close to $4 a gallon, Hillary Clinton and John McCain say they’ll bring relief with a moratorium on the 18.4-cent federal gas tax. Barack Obama opposes that but prefers a 1970s-style windfall profits tax (as does Mrs. Clinton).
Mr. Obama is right to oppose the gas-tax gimmick, but his idea is even worse. Neither proposal addresses the problem of energy supply, especially the lack of domestic oil and gas thanks to decades of Congressional restrictions on U.S. production. Mr. Obama supports most of those “no drilling” rules, but that hasn’t stopped him from denouncing high gas prices on the campaign trail. He is running TV ads in North Carolina that show him walking through a gas station and declaring that he’ll slap a tax on the $40 billion in “excess profits” of Exxon Mobil.
The idea is catching on. Last week Pennsylvania Congressman Paul Kanjorski introduced a windfall profits tax as part of what he called the “Consumer Reasonable Energy Price Protection Act of 2008.” So now we have Congress threatening to help itself to business profits even though Washington already takes 35% right off the top with the corporate income tax.
You may also be wondering how a higher tax on energy will lower gas prices. Normally, when you tax something, you get less of it, but Mr. Obama seems to think he can repeal the laws of economics. We tried this windfall profits scheme in 1980. It backfired. The Congressional Research Service found in a 1990 analysis that the tax reduced domestic oil production by 3% to 6% and increased oil imports from OPEC by 8% to 16%. Mr. Obama nonetheless pledges to lessen our dependence on foreign oil, which he says “costs America $800 million a day.” Someone should tell him that oil imports would soar if his tax plan becomes law. The biggest beneficiaries would be OPEC oil ministers.
There’s another policy contradiction here. Exxon is now under attack for buying back $2 billion of its own stock rather than adding to the more than $21 billion it is likely to invest in energy research and exploration this year. But hold on. If oil companies believe their earnings from exploring for new oil will be expropriated by government and an excise tax on profits is pure expropriation they will surely invest less, not more. A profits tax is a sure formula to keep the future price of gas higher.
Exxon’s profits are soaring with the recent oil price spike, but the energy industry’s earnings aren’t as outsized as the politicians seem to think. Thomson Financial calculates that profits from the oil and natural gas industry over the past year were 8.3% of investment, while the all-industry average is 7.8%. And this was a boom year for oil. An analysis by the Cato Institute’s Jerry Taylor finds that between 1970 and 2003 (which includes peak and valley years for earnings) the oil and gas business was “less profitable than the rest of the U.S. economy.” These are hardly robber barons.
This tiff over gas and oil taxes only highlights the intellectual policy confusion or perhaps we should say cynicism of our politicians. They want lower prices but don’t want more production to increase supply. They want oil “independence” but they’ve declared off limits most of the big sources of domestic oil that could replace foreign imports. They want Americans to use less oil to reduce greenhouse gases but they protest higher oil prices that reduce demand. They want more oil company investment but they want to confiscate the profits from that investment. And these folks want to be President?
Late this week, a group of Senate Republicans led by Pete Domenici of New Mexico introduced the “American Energy Production Act of 2008” to expand oil production off the U.S. coasts and in Alaska. It has the potential to increase domestic production enough to keep America running for five years with no foreign imports. With the world price of oil at $116 a barrel, if not now, when? No word yet if Senators Clinton and Obama will take time off from denouncing oil profits to vote for that.
Kyith is the Owner and Sole Writer behind Investment Moats. Readers tune in to Investment Moats to learn and build stronger, firmer wealth foundations, how to have a Passive investment strategy, know more about investing in REITs and the nuts and bolts of Active Investing.
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Kyith worked as an IT operations engineer from 2004 to 2019. Currently, he works as a Senior Solutions Specialist in Insurance Start-up Havend. All opinions on Investment Moats are his own and does not represent the views of Providend.
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Drizzt
Wednesday 12th of May 2010
alternative energy is expensive and normally u can only do these initiatives broadly if you have the funding for it. with the budget problems most states are having they will have a problem implementing that.