SO, EXXON MOBIL broke corporate records last week, posting a $9 billion profit on $100 billion in revenue in the third quarter. Right on cue, Democrats demanded that Washington confiscate some of those profits. Are they predictable or what?
Actually, Democrats already were demanding a “windfall profits tax” from oil companies. Exxon Mobil’s profit news just made them demand it more loudly in front of more microphones. While they’re trying to reach their hands into the back pockets of oil company executives and shareholders, let’s consider that $9 billion.
Nine billion dollars netted on revenue of $100 billion is a profit of 9 percent. That’s below the average profit margin for the telecommunications, software, pharmaceutical, medical equipment, accounting and computer hardware industries, to name a few. So take a deep breath before demanding that Washington pass legislation to loot oil company profits. If 9 percent is a profit margin so obscene that it demands confiscation, then a lot of small businesses in America are going to have to open their tills to Uncle Sam too. Or open them even further, that is.
Want to know who is making a bigger windfall than oil companies are making from the prices paid by the poor gasoline consumer? It’s good old Uncle Sam and his 51 little brothers.
Refining costs and profits combined make up about 15 percent of the cost of a gallon of gasoline, according to the U.S. Energy Department. State and local taxes make up almost double that, about 27 percent. (New Hampshire’s 18 cents per gallon fuel tax accounted for 7.2 percent of last week’s average gas price of $2.49 a gallon.)
State and local gas tax collections exceed oil industry profits by a large margin, according to a Tax Foundation study released last week. Since 1977, consumers have paid $1.34 trillion in gas taxes — more than twice the profits of all major U.S. oil companies combined during that same period. Last year, state and federal gas taxes took in $58.4 billion. Major U.S. oil company profits last year totaled $42.6 billion.
Want to make an immediate dent in gas prices? Cut gas taxes. Call it a windfall gas-tax tax. Sure, that would mean less money for road construction and maintenance. But when Washington is building bridges to nowhere, a little less revenue might force better spending decisions. And reducing the federal gas tax would instantly drop gas prices, whereas further taxing oil company profits would not. In fact, a windfall profits tax would discourage investment in new refinery capacity by depressing the potential profit from such investment. Less refinery output would cause prices to stay the same or even rise, not drop.
The windfall profits tax would accomplish nothing beneficial, while almost certainly making matters worse. It is yet another economically foolish, opportunistic ploy by Democrats to squeeze money from an industry whose popularity suddenly has plummeted.