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Willisms

« The First Mainstream Melee. | WILLisms.com | Social Security Reform Thursday: Week Forty -- German Social Security Disaster. »

Trivia Tidbit Of The Day: Part 212 -- The Oil Tax Government Revenue Train.

Exorbitant Oil Taxes-

With oil executives on Capitol Hill yesterday, it was a time for Senatorial grandstanding. Is it just me, or does nearly every Senate hearing with compelled, grilled witnesses resemble, stylistically, the Army-McCarthy hearings of half a century ago? Windbag pontificators blustering and pontificating and looking foolish. Badgered witnesses, no matter how objectionable to the public, become the victims.

Anyway, I kept hoping one of the oil company bigwigs would point out some of these facts:

windfallprofitstax.gif

Between 1977 and 2004:

...the 29 largest domestic energy firms earned a collective $630 billion after adjusting for inflation. These profits varied dramatically—from a low of $7.9 billion in 1995 to a high of $42.6 billion in 2004—based upon world market demand, supply, and international events.

In contrast, the taxes paid or remitted by domestic oil companies have been consistently far greater than their profits and now total more than $2.2 trillion (adjusted for inflation) over the past quarter century. The largest share of those taxes is federal and state gasoline excise taxes. In 2004, governments collected $58 billion in gasoline excise taxes. Overall, governments have collected $1.34 trillion in gasoline excise taxes since 1977.

Today, U.S. consumers pay an average of 45.9 cents per gallon in gasoline taxes. The federal gasoline excise tax is 18.4 cents per gallon while the average state and local tax is 27.5 cents. The vast majority of these taxes are levied at a flat rate per gallon—regardless of whether a gallon of gas costs $1.49, $2.49, or $3.49. Thus, the effective rate of these taxes can vary wildly, from roughly 31 percent in the former case to 13 percent in the later.

Federal and state governments also collect a substantial amount of excise tax from the sale of diesel fuel. In today’s dollars, governments have collected $160 billion in diesel fuel excise taxes since 1977.

Oil companies also pay taxes to governments for the right to extract oil from public lands and waters. For example, the federal government has collected a total of $48.8 billion in royalty payments from oil companies in exchange for their ability to explore and drill in the U.S. outer continental shelf. Oil companies also pay severance taxes to state governments for the right to drill on state lands. Unfortunately, complete data on state severance tax collections for the period is not available at this time.

In contrast to excise taxes, corporate income tax payments vary as widely as industry profits. As mentioned above, domestic energy companies earned a total of $630 billion in post-tax profits between 1977 and 2004. Tax Foundation economists estimate that companies paid $518 billion in corporate income taxes to federal and state governments during the same period. These payments varied from a low of $5.1 billion in 1995 to a high of $40.4 billion in 1981.

Taxes on the energy industry are the money train the government rides to pay for all of its fun and exciting projects.

Interestingly, a windfall profits tax (also called an "excess profits tax") would be a bad idea for many, many reasons.

...the windfall profits tax had the effect of decreasing domestic production by 3 percent to 6 percent, thereby increasing American dependence on foreign oil sources by 8 percent to 16 percent. A side effect was declining, not increasing, tax collections.

Who would've thought that implementing an exorbitant tax on top of already high taxes would create negative incentives for companies? Who would've thought that ridiculously high taxes would increase our dependence on foreign sources of oil? Who would've thought that outrageously high taxes would backfire, eventually producing less tax revenue? Oh, just anyone who has any knowledge whatsoever of basic Econ 101.

Want to goof up the booming economy? A windfall profits tax is a good place to start.

Incidentally, I have a theory on why much of the political establishment feels good about going after the oil companies:

According to America's most accurate pollster, 1/3 of Americans believe the U.S. economy is in a recession, and only 42% say the economy is not in a recession. These numbers, remember, coincide with Americans consistently expressing confidence in their own personal financial situations. People just happen to think the nebulous American economy, out there somewhere, elsewhere, is performing poorly.

Americans hear about oil company profits and assume that the energy industry is the only industry making any money, while the rest of the economy is assuredly in the tank. Ergo, it's perfectly acceptable to go after the oil companies, because they must be doing something immoral, unethical, or illegal.

Democrats swiftly step in to demagogue the issue. The establishment left-leaning media collectively echo the demagoguery. Republicans cower and concede the fight, knowing it's not politically astute to defend "big oil" in an era of 6 second soundbites.

One of the more stunning political developments of the past few years is the ability of anti-Bush folks (Democrats, the media, special interest groups) to talk down this roaringly awesome economy-- and succeed.

One would think that 4 straight years of economic growth, explosive productivity growth, relatively low inflation (even including rising energy prices), a booming housing market, more than 4 million new jobs over the past couple of years, and so on, would begin to sink in with the American people.

If more Americans realized the economy is not in the tank, Bush's approval ratings would justifiably rise to around 60%, there wouldn't be this awkward impetus for a windfall profits tax on those scoundrel oil companies, and Republicans in Congress might not feel so insecure about Social Security, drilling in Alaska, and tax reform.


Source:
The Tax Foundation.


-------------------------------------

Previous Trivia Tidbit: Abortion Stats.

Posted by Will Franklin · 10 November 2005 10:58 AM

Comments

The Irony of the thing is that oil companies have become very risk averse due to the changes of cost in exploration. A windfall profits tax will mean less investment in exploration because suddenly the ROI looks worse when you have to give over money to the government for being successful.
Meanwhile, we are bailing out airlines left and right as they try to shed contracts with thier work forces to try to drive a lower wage. Where are our Union Democrats on that issue?

This whole thing is a witch hunt in the name of PR and every idea that emerges from it has sounded stupider than the one before it.

Posted by: Rob B. at November 10, 2005 12:06 PM

What is the best way to get this knowledge to the general public? Please, try to do it.

Posted by: j schroeder at November 10, 2005 02:02 PM