Whos Profiteering Now?
ABCs Good Morning America only found negative things to say about the oil companies on November 9 and had several people to help them do it. Their woman on the street said Why can't gas prices stay down? Why are they so high? A man on the street followed with When is it going to stop? How much money do we have to pay? Then came the politicians scoring points. Sen. Charles Schumer (D-NY) blasted the oil companies, saying There is no question that they gouged, that they take advantage. Sen. Pete Domenici (R-N.M.) followed with What are you doing with the money? Why are the prices so high?
Those complaints were directed against the wrong people. Governments reap far more profits than the oil companies. According to a study by the Tax Foundation, over the past 25 years oil companies have paid more than $2.2 trillion in taxes, after adjusting for inflation, to federal and state governments. Furthermore, These figures do not include local property taxes, state sales and severance taxes and on-shore royalty payments. That is more than three times the profits from the oil companies over the same time span.
Ed Henry of CNNs American Morning helped lead the anti-business crusade, arguing that Congress wants to know why these oil companies are registering record profits at a time when consumers are seeing very little relief either at the pump or in their home heating prices. Gas prices have dropped every business day from October 6 to November 9, a 58-cent decrease, which is almost 70 cents below the high after Katrina.
CNN did give Red Cavaney, president of the American Petroleum Institute, a chance to comment in an earlier segment of American Morning. According to Cavaney Over the last five weeks, gasoline has fallen about 20 percent, if you look at the average price of regular gasoline, and that's the steepest decline that the Energy Information Administration has seen in a 15 years of collecting data. That fact alone undermined Henrys claim of very little relief at the pump.
During that 7:00 a.m. report, Miles OBrien said The question is are the oil companies perhaps taking advantage of this situation? Then, chuckling, he added I know, its hard to imagine! Soledad OBrien responded by throwing her hand in front of her mouth and saying sarcastically Shocking What? Really? Gouging the American public? Neither ever mentioned the runaway profits of the government from oil. They also ignored the impact of market forces on prices.
As the Business & Media Institute noted earlier, Exxons profit margin for its high-earnings quarter (dividing $9.9 billion by revenue of $100 billion) was almost 10 percent. But a look at Fortunes Global 500 list from July 2005 shows that is not unusual and some companies surpassed that in earlier quarters. Johnson and Johnson showed profits of almost 18 percent in the July report, while Bank of America enjoyed more than 22 percent. Compared to other industries, the oil companys profits were not out of line when compared to revenue. They simply had much more revenue from high demand.
Miles OBrien interviewed Cavaney about the recent surge in profits. Cavaney responded And we're at about the all industry average, which as historically been the case over five or 10 years where a cyclical industry and we invest over the long-term and its important to look over the cycle, as well as any small period of time, a months, two weeks, whatever the case may be. Oil industry profits were low before, and now they are higher. That is what happens in a business cycle.
OBrien then asked Cavaney if there should be a windfall profits tax. Cavaney referred to Congress research in 1990 on the windfall profits tax in the early 80s and concluded the one inescapable outcome is, you significantly reduce U.S. production and you significantly increase the imports of foreign oil. Government intervention often has unintended consequences, and in this case it led to increasing American dependence on foreign oil sources by 8 percent to 16 percent, according to the Tax Foundation.
The tax actually reduced government revenue as well. The foundation study noted that the windfall profits tax was forecasted to raise more than $320 billion between 1980 and 1989. However, according to the CRS, the government collected only $80 billion in gross tax revenue, with the next intake of around $40 billion.