ask yourself are you at fault for the gas prices are you driving to get a gallon of milk when the store is 3 blocks from your house??? are you going through the drive through when you could go in??? are you driving an suv…
123 billion in PROFFIT, Im sorry but proffit in my business is considered above and beyond all expenses,including taxes. If I increased my prices based on my tax bill I would be laughed at by my CPA. Proffit is only proffit after all expences. If oil companies are truly making these record proffits They are not feeling the belt tightening we are.
They could cut their proffitt some to help offse the burden of the average working person in our great country.
Politicians could have encouraged us to carpool with financial incentives or through tax subsidies toward car insurance premiums. Carpoolers use thier cars less because of sharing cars with riders or vice versa. Insurance companies are eerily silent on potential discounts on premiums like they do to good drivers, etc. Insurance companies bombarded car owners with pamphlets and brochures, yet I see almost nothing on carpooling incentives. I decided to drive my cars less and I called my agent about my lower annual mileage. Guess what? I got a discount. I had to ask , so why cant you, too? Silence is not exactly golden anymore these days… Silence is not expected to thrive in a democracy, right? Sure we made a lot of noise over nothing … nothing substantial because we avoid them to save the linings in our wallets…
Why should Oil Companies be forced to find alternative fuels? They are in the OIL BUSINESS…not alternative fuels business. Leave the alternative fuels business to people and companies who want to develop it. Believe me, if $3 a gallon fuel doesnt spur American ingenuity, $4 and $5 a gallon will. Americans have to change our spending habits too…buying things beyond your means needs to end…If you buy huge SUV’s, you have no reason to complain about gas prices.
Why will nobody talk about the real problems here!?
Oil price is set on a global market, and while a company can influence pricing, BP, Shell, Exxon compete heavily. Refiners certainly aren’t raking in any profit, and nobody is talking about the fallout in the industry just a few years ago. Where were the tax breaks then if there is going to be windfall profit tax now?
Let’s get down and dirty and talk about what REALLY is causing the spike in oil price, which is the place where most of the price of gasoline (more than 2 dollars per gallon) goes. OPEC…yes I said it, is breaking our backs for money. Wealthy man are making themselves fat on oil rights in these countries and running a cartel to cause inflated oil prices. Let’s address the high price of oil right there. Declare energy policies to fight these issues and start acting on them. You will drive out the speculators on the oil market without even having to do them…that alone will drop the price per barrel by 20%. Then we have to start threatening to tap our own reserves or even boycott OPEC countries. Create government tax breaks for green energy companies, and tie them to the price of oil. You will obliterate OPEC as they scramble to be the ones still selling oil to the USA.
Finally, Iraq. We’ve spent billions offering them a chance at freedom and their political leaders have laughed it in the face. Their oil wells are beginning to function again, their government had a SURPLUS budget. It’s time for them to foot the bill for our military intervention to remove their dictator. US military fuel in Iraq should be directly provided at no cost by the Iraqi government. Talk about a shift in global demand.
To fix energy problems, you have to fix ENERGY policy, not tax systems. Trade more aggressively, pursue alternatives and LINK ALTERNATIVE THREATS to expensive energy. No more games.
If it costs 4 cents a gallon to make diesel and 14 or 15 cents a gallon, because of the additives, to make gas, why are we paying $4.00+ a gallon for diesel and almost $4.00 a gallon for gas? If supplies are so down we had better start looking for other ways to power our country, they are available!
Honestly I think the dollar should be placed back on the gold standard to stabilize the value of our currency. The oil companies instead of being taxed should be forced to dump those extra profits directly into R&D for alternative fuel sources that are currently viable and new locations of oil. We need to solve this problem in the long run. Taxing these companies is not going to solve the problem. The government won’t pass the money onto us. They won’t use it to fund R&D. They might use it to start a panel that will say we need to develop alternative fuel sources. Let someone who has proven they know how to use money effectively solve it. FORCE THE OIL COMPANIES TO FIND OUR SOLUTION.
I personally don’t believe that gas prices are hurting that much, and don’t blame much on oil companies. In June 1975 when I graduated high school, I drove a 1971 Mustang that, on a good day, got 11 miles to the gallon. The local Exxon station, in the town, post $0.599 for regular leaded. Overall, prices of everything, and salaries, have about quintupled.
Thus gas, just to keep up with inflation, would be about $3.30 a gallon (to reflect difference between leaded and unleaded). The mileage on my 2000 Toyota is about 22 miles around town, 28 on the highway. Thus, I am effectively spending less than half what I used to spend, and that doesn’t account for my 5% American Express rebate.
Mike wants to tax Google, Yahoo and the Energy companies so he can give health care to “everyone”. Mike, I have a better idea. Why don’t you get yourself a tin cup and go knocking door to door in your neighborhood asking your neighbors to pay for your healthcare. Because that is essentially what you are asking for. Only you don’t want the hassle, and shame of begging your neighbors to pay your bills. Instead you want the government to hold the gun of tax-law to your neighbor’s head and extract the money for you.
I agree with the writer. That is what I have been telling people all along. Free markets work. And the more the government muddles in them the worse they make it. Markets have to correct themselves and yes sometimes it hurts and hurts bad when the market takes a downturn, but doing what the Fed Reserve is doing in bailing out companies is only prolonging the correction. And when that correction comes it will be much worse.
Why shouldn’t the government tax any company that is doing so well? After all, the government has been following this same method for years with the individual tax payer! The better I do in my income, the more I get taxed (AMT, etc.). So why not tax corporations in a similar fashion? This is of course sarcasm, as I generally agree with the arguments in your article, but it also shows how ridiculous and unfair the graduated tax is on us Americans.
I believe that the big raise in prices is due to the “irrational exuberence” of investors in commodities.
Increasing the amount of margin required to buy oil futures will push down prices. Also, limiting the % of oil futures that the Big Hedge and Pension funds can sink into Oil futures will puch the price down.
The fundamentals support $75, this is an asset bubble due to the low dollar and the flight to inflation proof investments.
I just hope that when the bubble bursts the banks and funds that lost their pants will not go to the fed asking for a handout.
How about a mandated 1% of their GP be set aside for road repair projects. Not building of new roads but simply the repairs needed for the roads we already have. The national fuel tax hasn’t even kept up with inflation over the last decade and our funding for our roads is getting a bit thin. At least the oil companies can agree that without usable roads we won’t really need the fuel to begin with. Otherwise its true that the higher taxes will be stuck to the consumer simply because now they have grown used to the huge profits and in no way intend to give it up.
I think that Paul LaMonica is right: we need to slap an excess profits tax on the obscene profits of … Google. And, keep an eye on Yahoo, too. Any tax on oil should be on the barrel, not at the pump. And, we should use all of the above tax revenues to pay for social security and health care (Medicare for everyone).
Let’s put extra taxes on Wall Street to compensate for the oil companies’ gouging. Of course the oil companies are passive beneficiaries of the speculative gouging but they are not complaining.
The Fed not cut rates? Bernanke is stuck in one gear, “inflate!”
As you point out, profit margin is the figure we should be looking at. And, personally, I would have no objection to a company, even an oil company making up to 15% ROE. Anything above that, I believe to be excessive; and, means they are not investing enough back into R&D and/or new production.
As for gov’t subsidies; oil, coal, and natural gas are established industries, they should not be receiving any gov’t subsidies. (Oil, coal, and natural gas are actually obsolete; and, there supplies are nearly depleted.) Even the oil industry ads point out that there is only a 60 year supply of oil left in the USA.
Gov’t subsidies should be reserved for industries that are deemed beneficial and/or necessary for economic and/or national security. And, as I stated earlier, oil is obsolete and almost depleted; so, dependance on it is actually a threat to our economic and national security. In God’s name, why would we subsidize a threat to our own securtiy?????????????????
I don’t know that the big oil companies should pay a windfall profits tax, although they sure have the money to do so between their profits and other financial moves they’ve made, as profiled in a BusinessWeek article last year. (May 28, 2007, “Pumping Cash, Not Oil”) But there’s plenty of reason to think something is fishy about their profits in the last few years as gas prices have been on a meteoric rise.
Profit margin is used often by apologists for the big oil companies. There’s a big difference between Google, which isn’t making corporate record profits while consumers pay record prices, and Exxon Mobil, which is hauling in corporate record profits while gas prices have been on a meteoric rise. Besides, we don’t have to go online every day, but we do have to go to work – I don’t imagine apologists for the big oil companies would tell us we should just stay home from work if we want to see gas prices drop.
Apologists also like to talk about our driving habits, but let’s get this all out of the way right now. A few years ago wasn’t the first time folks would gun it on the highways at speeds where gas mileage starts dropping noticeable, the SUV didn’t just get invented a few years ago, and folks have had long commutes to work for a long time. The time during which gas prices have gone on a meteoric rise isn’t a time where these things have changed. In fact, there was a report last year indicating that Americans were driving less – so much for all the talk about “record demand” that apologists are quick to cite as a reason for the record prices.
The big thing to take note of is that the profits of the big oil companies have tracked the average gas price rather well. I haven’t plotted the figures on a chart, but a look at some of the numbers should tell us something. Here are some numbers to think about:
Fact: According to the Energy Information Administration, the average gas price in the U.S. on December 31, 2001 was $1.096/gallon.
Fact: According to the Energy Information Administration, the average gas price in the U.S. on December 30, 2002 was $1.417/gallon.
Fact: According to the Energy Information Administration, the average gas price in the U.S. on December 29, 2003 was $1.454/gallon.
Fact: Exxon Mobil reported net income for the calendar year 2003 of $21.510 billion.
Fact: According to the Energy Information Administration, the average gas price in the U.S. on January 1, 2007 was $2.296/gallon.
Fact: According to the Energy Information Administration, the average gas price in the U.S. on December 31, 2007 was $3.028/gallon.
Fact: Exxon Mobil reported net income for the calendar year 2004 of $25.330 billion.
Fact: Exxon Mobil reported net income for the calendar year 2005 of $36.130 billion.
Fact: Exxon Mobil reported net income for the calendar year 2006 of $39.5 billion – not only another company record, but also a new record for any U.S. corporation at the time.
Fact: Exxon Mobil reported net income for the calendar year 2007 of $40.61 billion – not only another company record, but also another new record for any U.S. corporation.
Fact: Exxon Mobil’s net income for the calendar year 2007 was nearly double that for the calendar year 2003. During that time, the average gas price in the U.S. more than doubled as well.
Fact: Exxon Mobil reported net income for the quarter ending December 31, 2007 of $11.66 billion, the largest quarterly profit ever by a publicly-traded U.S. company.
Fact: Exxon Mobil reported net income for the quarter ending June 30, 2007 of $10.26 billion, the fifth-largest quarterly profit ever by a publicly-traded U.S. company.
Fact: According to the Energy Information Administration, refinery utilization was lower than 90 percent just 11 weeks for all of 2001.
Fact: According to the Energy Information Administration, refinery utilization was at 90 percent or higher just 15 weeks out of 2007.
Fact: Since the end of 2003, Chevron has earned a total of $54.7 billion.
Oil company CEO’s compensated obscenely? Anyone remember the bonuses handed out like candy on Wall Street last year? Yeah, they were adding jobs to the economy! So now when the banking & investment industry is suffering, I say sell your Le Coultre watches and trade in your 700 series BMWs for a Honda City to save money on gas.
I agree that CEOs in general are overpaid but that’s another story. Let’s go back to the oil industry and how they have had to struggle to survive the past 20 years. During this time period (which I have worked with the likes of Chevron, Shell and now Aramco), thousands of fellow co-workers were laid off and given early retirements. As for me, I survived four downsizes through luck and timing. I also left companies before the axe fell and twice went through a year without a raise. Why did I hang around? Because I like this industry – we make a product that everyone consumes. Yet, in the US, the last time anyone built a new refinery was in Mississippi with Chevron – in the late 60’s. The “not in my backyard” has now come full circle. In 1990, there were about 300 active refineries in the US. By 2000, that number was around 190. If you can’t get a permit to modernize and de-bottleneck, its cheaper to sell or even scuttle than run a smaller refinery on razor thin margins.
Same thing with the chemical industry in the late 90’s – they were either sold off or joint ventured with other chemical companies. So what bright ideas come out of Washington? Tax the oil industry more and make it even harder for them to compete with nationalized oil companies. Heaven forbid we open both coasts to drilling and put more oil on the market to drive prices down than be at the mercy of oil imports. No, that would take hard work but one day, the consumers will finally have it up to ‘here’ and demand that the US oil companies drill for oil at home which will create more jobs, increase tax revenue and even export oil for change.
Sounds like I have a platform to run for President in 2012. Think anyone would vote for an oil-friendly candidate? If prices hit $7-10 a gallon for gas, I might have a real chance!
should we have placed a windfall tax on local governments when they reaped huge “profits” from property taxes during the housing bubble (gains of 50% per year in some municipalities), and given some those tax dollars back to tax payers? great article from Mr. LaMonica.
raising taxes on oil companies will only be passed onto us and we will pay more at the pump.
No I do not believe that we should create a new tax for the Energy companies! If people are tired of paying the high gas prices then they should blame nobody but themselves. Ask yourself this question do you really need that F150 HD, Tahoe, Suburban, JEEP, get the picture it is the demand that we are placeing on the system that determines the price! Lower demand, trade in the big engine vehicles, switch to a 4 cylinder and watch your gas consumption drop along with the price per gallon, slow down speed racer and that tank full will last alot longer. Yes there are global issues that drive up the price but a strong demand is the main culprit! IMHO the price per gallon is still to low when the price gets so high that it forceable make you change then the prices are to high! I drive a Nissan sentra 1.4s, 32 to 38 MPG, tank is 13 gallons. I fill up once a week twice if I goto the beach!
Wow, I’m surprised at some of the common sense I’m reading in this article and the remarks. It’s simple really, if you want less of it tax it more, if you want more of it tax it less. Oil companies must invest huge sums of capital to replace reserves and keep the production flowing they have, a 9% ROR is not unreasnoable at all. Check out ROR’s on the dot coms.
Petroleum Engineer.
As a petroleum engineer, I’ve gone as long as two years without full time work when oil prices were low. No one in government or the media cared about my problems or the health of the industry. Americans want cheap energy (and plenty of it) without any regard as to how they get it.
The oil companies don’t need any “windfall profit” taxes.
Subsidies? I have never looked into what the subsidies cover (probably exploration in the US and advancing recovering of current oilfields), but I’d like to see the subsidies modified such that investments towards “clean & green” energy get the subsidies while those with a business as usual approach have fewer subsidies.
Oil is an “interim” technology that we NEED to get to a more sustainable and cleaner energy infrastructure; we just need to make sure we don’t get stuck thinking oil is the *only* energy source (and today’s current high prices help to insure progress on other fronts).
Does anyone remember the price of oil in the late 90’s reaching $11 – $12 per barrel when many people in the oil industry lost their job? The free market, and not the government, should help control the price and moderate supply and demand. At $120/barrel, the price of oil now spurs on lower cost new technology that was abandoned in the late 90s due to profitability.
Absolutely NOT. DO NOT RAISE TAXES on oil companies! Compared with the rest of the industrialized world, corporate taxes are already too high, and should be lowered, if not abolished. The Govt did not come up with the brain power nor the ingenuity to harness the power of extracting, transporting, and selling oil. It is unamerican for politicans to be singling out XOM because they are the most profitable. In fact, if you would look at the profits of banks, you would find
(C + BOA) > XOM in the past few years ‘00-’06. Do you hear politicans calling for a increase in taxes on C or BOA? Of course not. XOM is an easy scape goat for the left.
However, just as the left usually does more harm than good, politicans going after XOM are very short sighted.
Here in Maryland, the state pension fund has over $400M invested in XOM. If the Federal politicans would tax XOM, it would harm XOM profits, the stock performance, and ultimately the good people who work for the state of Maryland who are set to retire. Additionally, raising taxes would harm XOM’s business, who would eventually pass the costs on to consumers, or retirees. As usually, the world improvers are negligent in intellectual logic.
The answer is to get out of the way of business. The Federal Govt needs to lower taxes to make corporations competitive with the rest of the industrial world, since we are competing on a world wide basis. XOM is literally competiting with state run oil & gas companies in Russia and Venezeula. In a very difficult economy, it is not in the US’ best interest to harm the few business that succeed.
Increase taxes for the oil companies? No. Increasing taxes for the oil companies decreases the returns earned by oil company shareholders. Oil company stocks are held is every pension plan, most mutual funds, virtually every 401K plan, and by millions of individual investors. Tax the oil companies and you hurt millions of individual investors.
no need for more taxes, just wipe out the subsidies for the oil companies, and give those subsidies to the green energy sector. no not corn oil, real green energy. lets go america, be a leader, rather than a glutton.
I don’t believe we should place a “windfall tax” on oil companies. I don’t think a company should be punished for a strong business model and a boom in its sector.
I do, however, believe that no company or sector should be treated differently. Remove all legislation that treats oil companies as “special” and I’ll be happy.
Don’t tell me the oil companies need special treatment because of their importance to the U.S. economy. The subsibies aren’t being used to reduce gas and oil prices, they are instead being used to increase profits. A tax payer supported profit increaser seems to be the opposite of a free market economy.
Treat oil companies the same as all other companies, both good and bad.
Why should the government be allowed to take more money from a company just because they are profitable? I am glad you mentioned the ~9% profit margin in your article, as people have no idea that the reason these companies post a huge profit is because they move an obscene amount of product.
The Venezuela analogy is mixing apples and oranges, whether to tax our own companies is a different question than if a foreign company was exploiting US natural resources and we wanted to ask for a larger percent cut of the profits (which is what V. is doing)
But guess what? I’m not going to argue for taxing the companies, rather to suggest instead that you’re asking the wrong question.
The right question is, should the US taxpayer let our government continue to subsidize oil companies when not only are their profits very large, but also we’re dangerously destabilizing the climate of the only liveable planet we have. Take away those subsidies for oil and redirect every dollar to tax breaks for consumers and subsidies for industries that help make America stronger and the world safer for our kids: wind, solar, other renewables, and insulation, conservation, efficiency!
I agree with this column. Another thing to consider is that part of the reason these companies are reporting big earnings numbers is because they are BIG companies. The comparison to other S&P companies and to Google is a more appropriate comparison to make in guaging how big the profits really are. And yes, senior execs are making way too much money, but that’s an entirely different issue and isn’t limited to energy companies.
Sure, the government can impose an extra tax on these profits, but I seriously doubt that will bring down the price you pay at the pump. And most likely the tax that would be collected will be wastefully spent where it doesn’t really benefit anyone.
I am uneasy in general with the idea of the State deciding when a private company is making “too much” profit, and then arbitrarily taking some of that money. Targeting oil companies seems like a “gimme” since everyone hates them. But if the rules allow grabbing a chunk of Exxon’s profit because they have “too much”, then it also allows taking more of my (one person business) profits.
As for wanting “them” to invest more in getting us off of imported oil, I think a 20$ a barrel tax on imported (imported only) oil would be the way. Use the money for infrastructure (not dubious alternative energy) and paying government debt.
Gas at the pump is already one of the highest-taxed items in our economy. Adding another tax at the corporate level will only increase the cost of gas further. If politicians were serious about lowering prices, maybe they could lower the obscene federal and local taxes on gas. In my home state, total taxes on a gallon of gas are over $0.50.
Furthermore, although oil is currently at high prices, oil companies who must replinish their supplies also have to pay a very high price to do so. This leads to oil companies making lots of money but also spending lots. Certainly nothing wrong with that.
Dangit, Robert, the problem is not that I drive and SUV. The problem is that there is too much money to be made for Detroit to produce a more fuel-efficient automobile. Even if SUV’s were more efficient, the fact remains that vehicles come in all shapes and sizes and, accordingly, there are going to be those that are more fuel-efficient than others. Should I ONLY drive the most efficient? Or, is it OK with you if i choose? I drive a Ram truck because it’s SAFER. DUH. I don’t feel guilty at all. I DO, however, feel guilty for idling for a half hour in a parking lot. So, think about this: The next time you’re in an accident, are you going to be thinking about that government crash test rating on your small, fuel-efficient go cart? Or, arr you going to use your head and common sense and say, “Wow, that’s a big Ram truck that’s about to hit me. This is not good.”