BAD BIG OIL ?

During the last couple of years, Halliburton, big oil companies and other conglomerates have been demonized by the media, by the democrats and even by some republicans. Halliburton (and its former KBR division) has been singled out for attack because the left-wing hates Dick Cheney, its former CEO - more so for that reason than for some of its questionable business practices. Exxon Mobil and other oil giants (one of my friends refers to BP as "the enemy") have been excoriated for profiting from high oil prices at the expense of consumers.

It is true that Exxon Mobil and other oil giants have reported record profits since the price of oil shot up. Obama and his fellow democrats want to reimpose a windfall profits tax on the oil companies. Since 1988, no windfall profit tax has been enacted in the U.S.. However, with gas prices at record levels, at least seven bills that will tax windfall profits of crude oil producers have been introduced in the 110th Congress during 2008. Senate Democrats, led by Chuck Schumer and Harry Reid, have proposed a 25 percent windfall profits tax, while Rep. Dennis Kucinich has been calling for a 100 percent windfall profits tax rate. Hillary Clinton is barnstorming the country talking about a windfall profits tax that will not only stick it to the corporate fat cats but will "pay" for a gas tax holiday.

Wikipedia's description of the windfall profits tax includes the following criticism:

In a February 12, 2008 editorial titled "Record Profits Mean Record Taxes," Investors Business Daily said that regular income taxes already take into account the high profits, and that there's no need to do anything extra to tax or punish the oil companies. As an example, the editorial states "Consider the magnitude of the contributions from Exxon alone. On those 'outlandish' 2006 profits, the company paid federal income taxes of $27.9 billion, leaving it with $39.5 billion in after-tax income. That $27.9 billion was more than was collected from half of individual taxpayers in 2004. In that year, 65 million returns — which represent far more than 65 million taxpayers because of joint returns — paid $27.4 billion in federal income taxes."

In an August 4, 2008 editorial titled "What Is a 'Windfall' Profit?" the Wall St. Journal wrote, "What is a 'windfall' profit anyway? ... Take Exxon Mobil, which on Thursday reported the highest quarterly profit ever and is the main target of any 'windfall' tax surcharge. Yet if its profits are at record highs, its tax bills are already at record highs too... Exxon's profit margin stood at 10% for 2007... If that's what constitutes windfall profits, most of corporate America would qualify... 51 Senators voted to impose a 25% windfall tax on a U.S.-based oil company whose profits grew by more than 10% in a single year... This suggests that a windfall is defined by profits growing too fast.... But if 10% is the new standard, the tech industry is going to have to rethink its growth arc... General Electric profits by investing in the alternative energy technology that Mr. Obama says Congress should subsidize even more heavily than it already does. GE's profit margin in 2007 was 10.3%, about the same as profiteering Exxon's."

By reading the entire Wikipedia description of windfall profits taxes it is apparent that such taxes do not result in the desired effect. In the 1980's, those taxes led to a reduction in oil production and, as a result, failed to generate any significant revenues for the government. Furthermore, the lower oil production led to higher fuel costs. The politicians, mainly democrats, who are now proposing new windfall profits taxes are pandering to beleaguered consumers with feel-good legislation designed to punish big oil for profiting from the rise in the price of oil.

In a recent column, George Will put the "obscene" profits of big oil into their proper perspective. Will wrote: "Obama thinks government is not getting a 'reasonable share' of oil companies' profits, which in 2007 were, as a percentage of revenues (8.3 percent), below those of U.S. manufacturing, generally (8.9 percent). Exxon Mobil pays almost as much in corporate taxes to various governments as the bottom 50 percent of American earners pay in income taxes. Exxon Mobil does make $1,400 a second in profits - hear the sharp intakes of breath from liberals with pursed lips - but pays $4,000 a second in taxes and $15,000 a second in operating costs."

That should put the obscene profits charge to rest. The oil companies are not responsible for the rise in the cost of a barrell of oil. And while they have made record profits as a result, they are also paying record amounts in taxes. The demonizing of Halliburton is really designed to satisfy those who hate its former CEO, Dick Cheney. And the demonizing of big oil, along with the proposals for a windfall profits tax, are merely phony politicial ploys designed to soothe consumer anger over the high prices at gasoline pumps. Is big oil really all that bad? I don't think so!