« Discount Brokers | Main | “Windfall Profits” Farce Part 2 »
“Windfall Profits” Farce Part 1
By JD Bluefield | May 2, 2008
Today, Exxon-Mobil posted it’s first quarter earnings for 2008, and although not record breaking, $10.89 billion is a helluva lot of money. With gasoline at $4/gallon and oil at $100+/barrel, these profits have only fueled politician’s focus on “Windfall Profits” taxes and gasoline tax holidays for consumers. Unfortunately, this is all a farce, and just a way for politicians to pander to the publics emotions.
So, before you jump on the “Windfall Profits” Tax bandwagon, let me Engineer . After much researching, I ran across only one article not pandering to “poor drivers”. This is an excerpt from BusinessWeek,
$9.3 billion. That’s how much Exxon paid in worldwide income taxes in the first quarter of 2008, representing a 49% tax rate on its gross income of $20.2 billion… Our industry is one of the most heavily taxed in the world,” says Gantt Walton, an Exxon spokesman. “While our worldwide profits have grown, our worldwide income taxes have grown even more.” Walton says. From 2003 to 2007, Exxon’s earnings grew by 89%, while income taxes grew by 170%. Much of that growth was overseas. Oil-producing countries charge companies like Exxon dearly to dig for oil. Arrangements vary from country to country, but Russia and Libya charge companies up to 90% of the revenues they collect for extracting oil…
There it is, black and white, 49% income tax. Can you imagine if you were taxed 49%? Everyone wants to complain that, “How dare a company make such a profit at our expense! How dare someone impede my ability to drive my 13mpg SUV!” The truth is, XOM, and most other oil companies, are already taxed to the extreme. Another sad truth is that, the US has some of the cheapest gas of the developed world!
Another misinterpretation that these record profits propagate is that these companies are gouging prices. The truth is, pumping oil, unless you’re a Russian, Venezuelan or Middle-Eastern state, does not have very high profit margins. The easy and shallow oil is gone, and the technology involved to go deeper in the earth and farther away from land, is extremely expensive. Below is a table of the 2007 Net Profit Margins for several oil companies and many other well know large-cap companies.
| Company | Ticker | 2007 Net Profit Margin | Field |
|---|---|---|---|
| Dryships | DRYS | 81.52% | Cargo shiping containers |
| CNET Networks | CNET | 48.61% | Computer Website and Magazine Publisher |
| Marvel Entertainment | MVL | 33.82% | Comic Books and Movies |
| Dolby Laboratories | DLB | 30.69% | Sound System Developer |
| T. Rowe Price Group | TROW | 29.74% | Financial Planning / Mutual Fund Manager |
| DreamWorks Animation SKG | DWA | 28.46% | CGI Movie Studio |
| Microsoft Corporation | MSFT | 28.33% | Do I really have to explain? |
| TD Ameritrade Holding Corp | AMTD | 28.17% | Online Discount Broker |
| Coke | KO | 20.73% | See MSFT. |
| Procter & Gamble | PG | 20.33% | Consumer Goods |
| Colgate | CL | 11.39% | Consumer Goods |
| Exxon-Mobil | XOM | 10.04% | Oil/Gas |
| Chevron | CVX | 8.46% | Oil/Gas |
| British Patroleum | BP | 7.26% | Oil/Gas |
Many of these companies may not pull in the same revenues as big oil companies, but they definitely rake in a lot more money as a percent of what they charge. Would you ask for a “windfall profits” tax from Coke? Perhaps you should as your financial advisor at T. Rowe-Price why they’re making so much money from you? Perhaps your retirement fund could have made more last year? Or tell Microsoft that they have a monopoly… oh, wait the Dept. of Justice already did that.
Let me put it this way. Does this sound like something you’d hear a politician say in an interview?
I want a “Windfall Profit” tax enacted on companies like Exxon-Mobil, Chevron and BP, THEY are the reason you have to pay $3.50, $3.80 or even $4/gallon at the pump! Those greedy companies are gouging your pockets, and I want to fix that! If elected, I will form an investigative committee to look into oil-price-fixing between the major companies. I will also create a gas tax break this summer to help people through these hard times.
Now, lets play a little BluefieldMoney Mad-Libs. Replace the underlined words above with: Marvel, Dolby and Dreamworks, $8, $10 or even $15 per ticket at the theaters, movie ticket and again movie ticket. Now take a moment to read through it again. Hmmm… that just doesn’t sound right. These are all companies with more than twice the profit margins, but only a lunatic would demand politicians to reduce ticket prices. On the other hand demanding cheaper gas is perfectly acceptable.
Sadly, the summer gas tax holiday won’t solve much either. The Federal tax on gasoline is only 18.4 cents per gallon and diesel is 24.2 cents. That’s right, 18.4 cents. So its chops the $3.6999/gal to $3.51599/gal, with a net savings is maybe $2-3 on that $50-80 tank of gas. Right now, no one is talking about these numbers, but once you take out a calculator and Engineer it all out, it just doesn’t add up to much. Whenever someone makes a promise that you’re going to get something that sounds too good to be true, it usually is.
So how do you Engineer your Finances and Investments to benefit? Well, there are many signs that gas prices will only increase. Read: $100 Oil Is Here To Stay. So rather than cry and whine about it, you can do something about it:
- Buy a smaller more fuel efficient car before gas gets higher. As gas prices continue to increase, more people will be selling their large SUVs. I’ve read some dealers are already declining them for trade-in.
- Contrary to popular vote, I would avoid hybrids, current hybrid technology is overrated. I’ll get into the engineering and science behind that another day.
- If you can’t beat-em, join-em. Learn how to make money from high oil prices.
- Save whatever money you can, as things may soon get worse. Build up your Emergency/F-U Fund. Even if they don’t, you’ll always have the cushion.
- Check out Buying In Bulk, and buy your gas from a warehouse.
- Find the cheapest gas in your area.
Topics: Engineered Living, Investing |
One Response to ““Windfall Profits” Farce Part 1”
Comments
You must be logged in to post a comment.
May 2nd, 2008 at 6:46 am
The TERMINATOR, gov of Calif, let it slip once when trying to reduce spending to balance the budget, said, “If all the tax on gas revenues were used for freeways and roads, California would not have a traffic problem and would have the best freeway system in the world.” Adding, there would be no traffic jams. Gas tax is suppose to be like a “user fee,” the ones who use it, should pay. The reality is that it ends up in the general fund and gets spent for other things, just like the lottery money is to be used for education (california is layingoff 20,000 teachers). So the oil companies make a fair profit, but people don’t want to hear that the people are the problem, so the politicians tell the people what they want to hear. I ranted, sorry. Anyway, there is more than federal tax, states tax gas too.