Windfall profits for the government.
CORRECTION: To judge by the oily rhetoric, one would not recognize that the U.S. is a capitalist society that requires energy--most now derived from fossil fuels--to run our factories and vehicles, light our cities, and heat our homes. Yet, considering all the blather about obscene corporate excess, "profit" seems to be the only dirty word left in this country.
If Americans really do want to do something about such "obscene" profits, they should buy shares of stock in oil companies. Of course, many already do--which is one reason why it is accurate to say that corporations do not pay taxes, people do. What would more taxation accomplish? A study by economists Robert Shapiro and Nan Pham of the windfall-profit legislation that was proposed last year found it would cut domestic oil production by about 100 million barrels annually as well as do damage to many pension accounts. Around 41 percent of oil company shares, according to their report, are in the hands of pension holders and retirees. If there is less for the companies to plow back into business, those accounts will suffer. As it turns out, the industry reinvested around of $86 billion last year, according the American Petroleum Institute.
Some perspective is needed. The U.S. has actually become about twice as efficient with the use of energy over the last 50 years. And prices and profits represent signals for the marketplace. Certainly, no one enjoys paying more at the gas pump. However, as pointed out by Robert Kaufman, a professor at the Center for Energy and Environmental Studies at Boston University, when "adjusted for inflation, [oil] prices are below where we were in the late 1970s and early 1980s."
Companies assume risks; some years it doesn't pay off well and some years it does. Government does nothing, but gets its share off the top regardless. The truth is that Uncle Sam and his state counterparts share handsomely in the work of the oil companies--including an average of 45.9 cents on each gallon of gasoline sold.
High Corporate Tax Rates
The government already taxes corporate profits more than in any other developed nation. "The combined federal-state tax rate on corporate profits is 39.3 percent in the U.S.," according to a study by the Tax Foundation. "That's the highest of all nations in the OECD [Organization for Economic Co-operation and Development]."
Since 1977, says the foundation, American government at the federal and state levels has raked in more than $1.34 trillion in gasoline tax revenues, in inflation-adjusted totals--which is more than twice as much as the profits in the oil industry. To levy additional taxes is a sure-fire way to drive up the price of the commodity in question--in this instance, energy, which would add more burdens on consumers.
Writing for "National Review Online," economist Jonathan Williams points out that three energy companies in this country are about to pay or remit more than $158 billion in taxes around the world for 2005.
Profits--not the taxes--encourage exploration for energy and its development. If a so-called windfall-profit tax were to be imposed, there would be less energy and more dependence on foreign suppliers. That's not just theory, but the track record of what happened the last time this notion gained political traction.
Prior Experience Taxing Production
During the Carter administration a windfall-profit tax was imposed (it was actually more of an excise tax on domestic oil production that was supposed to be short-lived); it lasted from 1980 until it was finally repealed in 1988. It was an ill-planned response to the Arab oil embargo, with the stated goal being to cut U.S. dependence on foreign suppliers. It did exactly the opposite. The result, concluded a study by the Congressional Research Service, was that domestic oil production was reduced by three to six percent and foreign oil imports were increased by 8 to 16 percent.
There is no doubt that the total profits of the large oil companies have been high of late, though even the recent industry profit margins are close to the national average. In a Cato Institute Policy Analysis entitled "Economic Amnesia," dated January 12, 2006, Jerry Taylor and Peter Van Doren looked at the evidence, based on the return of investment capital. "Surprisingly, the oil and gas sector has been less profitable than the rest of the U.S. economy over the past 33 years," they concluded.
Recent Senate testimony--not from the oil industry, by the way--pointed out that while one large oil company had just reported profits on sales of more than 9 percent, "McDonald's made 24.4 percent." Where, one wonders, is the hue and cry to sock it to those "excessive" hamburger profits? To be consistent, shouldn't left-wing senators be demanding that McDonald's be forced to invest in the production of "alternative" foods--say, Belgian endive?
No doubt, some alternative energy sources will prove their commercial worth. That will, however, only be properly determined when they can compete without subsidies. As it is--despite their being politically correct--wind, solar, and geothermal in 2004 accounted for less than 1 percent of U.S. energy consumption.
For years, of course, political leaders in both major parties have promised that their policies would make the U.S. independent of foreign suppliers ... then proceeded to make the situation worse. Back in 1973, for instance, President Richard Nixon vowed, "In the year 1980, the United States will not be dependent on any other country for the energy we need." Gerald Ford said we'd get there by 1985, and Jimmy Carter pushed the date to 1990.
Despite those guarantees, imports currently account for more than 60 percent of U.S. oil consumption. That percentage has been rising, not falling. So a brainstorm of the moment presumes that the most powerful engine in the world, the U.S. economy, can be kept roaring on the fumes of switch grass transformed into ethanol.
To be sure, the demagoguing is bipartisan; if one major party is bad, the other is worse. As noted in the Wall Street Journal: "Some of the same politicians calling for these punitive measures also fantasize about 'energy independence,' while blocking methods to achieve it. Washington Senator Maria Cantwell, for instance, has sent letters to regulators demanding investigations into why there aren't more refineries in the U.S., but she supports restrictions on refineries in Puget Sound. Senator Byron Dorgan of North Dakota wants a 50% tax on the price of oil above $40 per barrel and would exempt companies that invest in new energy production. Yet Mr. Dorgan opposes new energy production in places where companies want to explore, such as the Arctic National Wildlife Refuge and the Outer Continental Shelf."
The U.S. has many energy sources available with current technology, before needing to hop on the subsidized switch-grass and wood-chip bandwagon. If exploitation of ANWR had been allowed, the U.S. could now be using some of the 10 billion barrels of oil (mean estimate) in that desolate region. Drilling would be confined to a minuscule 2,000-acre footprint on the reserve, which measures a massive 19.6 million acres--or 0.01 percent of ANWR's total acreage.
Meanwhile, federal laws, regulations, and restrictions are denying states the right to access 635 trillion cubic feet of natural gas and 102 billion barrels of oil on the Outer Continental Shelf. Hampered by other regulations are the resources in the Rocky Mountains; unbeknownst to many, the U.S. has more oil than the Middle East in its oil shale reserves. No new nuclear plant has been built in the U.S. since the 1970s, thanks in large part to "environmental activists." Nor have there been any refineries built for more than three decades. A Saudi-owned firm did offer to build two, but only if someone else would obtain the necessary environmental permits.
Unfortunately, it appears that we are just going to get more of the same. On January 1, two new major federal regulations kicked in--mandates requiring our gasoline to have more ethanol and less sulfur--virtually guaranteeing another increase in the price of gasoline. One might think we are addicted to stupidity.
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|Title Annotation:||Correction, Please!|
|Author:||Hoar, William P.|
|Publication:||The New American|
|Date:||Mar 20, 2006|
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