Who’s Profiteering Now?
Congress and media push to punish oil
companies despite the fact governments rake in more from oil taxes
than oil companies earn in profits.
By R. Warren Anderson
Free Market Project
Nov. 10, 2005
Â Â Â Â
With oil executives testifying before Congress, the news media
continued drilling the industry for “high” profits.
Â Â Â Â ABC’s “Good Morning America” only found negative things
to say about the oil companies on November 9 and had several people
to help them do it. Their woman on the street said “Why can't gas –
prices stay down? Why are they so high?” A man on the street
followed with “When is it going to stop? How much money do we have
to pay?” Then came the politicians scoring points. Sen. Charles
Schumer (D-NY) blasted the oil companies, saying “There is no
question that they gouged, that they take advantage.” Sen. Pete
Domenici (R-N.M.) followed with “What are you doing with the money?
Why are the prices so high?”
Â Â Â Â Those complaints were directed against the wrong
people. Governments reap far more profits than the oil companies.
According to a study by the
Tax Foundation, over the past 25 years oil companies have paid
“more than $2.2 trillion in taxes, after adjusting for inflation, to
federal and state governments.” Furthermore, “These figures do not
include local property taxes, state sales and severance taxes and
on-shore royalty payments.” That is more than three times the
profits from the oil companies over the same time span.
Â Â Â Â Ed Henry of CNN’s “American Morning” helped lead the
anti-business crusade, arguing that Congress wants to know why
“these oil companies are registering record profits at a time when
consumers are seeing very little relief either at the pump or in
their home heating prices.” Gas prices have dropped every business
day from October 6 to November 9, a 58-cent decrease, which is
almost 70 cents below the high after Katrina.
Â Â Â Â CNN did give Red Cavaney, president of the American
Petroleum Institute, a chance to comment in an earlier segment of
“American Morning.” According to Cavaney “Over the last five weeks,
gasoline has fallen about 20 percent, if you look at the average
price of regular gasoline, and that's the steepest decline that the
Energy Information Administration has seen in a 15 years of
collecting data.” That fact alone undermined Henry’s claim of “very
little relief” at the pump.
Â Â Â Â During that 7:00 a.m. report, Miles O’Brien said “The
question is are the oil companies perhaps taking advantage of this
situation?” Then, chuckling, he added “I know, it’s hard to
imagine!” Soledad O’Brien responded by throwing her hand in front of
her mouth and saying sarcastically “Shocking… What? Really? Gouging
the American public?” Neither ever mentioned the runaway profits of
the government from oil. They also ignored the impact of market
forces on prices.
Â Â Â Â As the Free Market Project
noted earlier, “Exxon’s profit margin for its high-earnings
quarter (dividing $9.9 billion by revenue of $100 billion) was
almost 10 percent. But a look at Fortune’s Global 500 list from July
2005 shows that is not unusual – and some companies surpassed that
in earlier quarters. Johnson and Johnson showed profits of almost 18
percent in the July report, while Bank of America enjoyed more than
22 percent.” Compared to other industries, the oil company’s profits
were not out of line when compared to revenue. They simply had much
more revenue from high demand.
Â Â Â Â Miles O’Brien interviewed Cavaney about the recent
surge in profits. Cavaney responded “And we're at about the all
industry average, which as historically been the case over five or
10 years where a cyclical industry and we invest over the long-term
and it’s important to look over the cycle, as well as any small
period of time, a months, two weeks, whatever the case may be.” Oil
industry profits were low before, and now they are higher. That is
what happens in a business cycle.
Â Â Â Â O’Brien then asked Cavaney if there should be a
“windfall profits” tax. Cavaney referred to Congress’ research in
1990 on the “windfall profits” tax in the early ’80s and “concluded
the one inescapable outcome is, you significantly reduce U.S.
production and you significantly increase the imports of foreign
oil.” Government intervention often has unintended consequences, and
in this case it led to “increasing American dependence on foreign
oil sources by 8 percent to 16 percent,” according to the Tax
Â Â Â Â The tax actually reduced government revenue as well.
The foundation study noted that “the windfall profits tax was
forecasted to raise more than $320 billion between 1980 and 1989.
However, according to the CRS, the government collected only $80
billion in gross tax revenue,” with the next intake of around $40