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Trivia Tidbit Of The Day: Part 197 -- Oil Profits.

"Excess" profits taxes-

In recent months, as the price of a gallon of gasoline has hit nominal highs, we've heard calls from some Democrats for a special "excess profits tax," applicable exclusively to energy companies.

What the heck kind of Marxist nonsense is an "excess profit," anyway?

The Tax Foundation explains that oil industry profits are cyclical:

Meanwhile, if oil company profits are high, what does that make the taxes on them?

Exorbitant:

Due in part to substantial hikes in the federal gasoline excise tax in 1983, 1990, and 1993, annual tax revenues have continued to grow. Since 1977, governments collected more than $1.34 trillion, after adjusting for inflation, in gasoline tax revenues—more than twice the amount of domestic profits earned by major U.S. oil companies during the same period.

Maybe we should impose an "excess tax refund" when gas tax collections are above corporate profit levels. Incidentally, what other industry is taxed as much as the oil industry? Cigarettes? Booze?

And it's because the government is addicted to those revenues:

...there have been only three years (1980, 1981, and 1982) in which domestic oil industry profits exceeded government gas tax collections. In the remaining years, gasoline tax collections consistently exceeded oil industry profits, reaching a peak in 1995 when gas tax collections outpaced industry profits by a factor of 7.3.

The oil business is a boom and bust business. The good times are good, but the down times are terrible-- and terrifying for families employed by energy companies, large, medium, and small. I say this as someone who grew up in small oil towns. People dwell on the good times but don't ever talk about the down times, the times when oil prices are so low that layoffs are just about the only way for these companies to remain profitable. In 1999, as I was nearing graduation from high school in Midland, Texas, the price of a barrel of oil dipped below $10, after remaining below $15 dollars for more than a year. It wasn't good. Many people relocated. Many were forced into early retirement. Many were just laid off. Midland's economy took quite a hit during that time. It wasn't pleasant for a lot of good folks.

The point of this anecdote is not that you should feel sorry for small oil towns when oil prices drop and their economies shatter. It's more that you should understand just how up and down the oil business is. The good times are not infinite, nor are they even really as great as you might imagine. The good times are a reward for hanging in there during the bad times. And smart companies try to level things out during downturns with profits earned during the fleeting upswings.

So, to those advocating an "excess profits tax" on oil companies, shame on you. You, Senator Dorgan (.pdf), are communist scum.

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Posted by Will Franklin · 26 October 2005 11:58 PM

Comments

Posted by: surf-actant at October 27, 2005 08:08 AM

Posted by: Hoodlumman at October 27, 2005 08:40 AM