Energy Policy: One of the most effective arguments used against the oil industry is that it earns "excessive" profits that must be taxed away. But as with the rest of the left's failed energy agenda, it's based on pure falsehoods.
With prices for crude above $100 a barrel, it's no surprise the news media are fixated on oil companies' "record profits."
Predictably, Democrats and others on the left use rising profits to bludgeon "Big Oil" and push more subsidies for money-losing "green energy" schemes while working to raise taxes and kill subsidies for oil.
"When the price of oil goes up, prices at the pump go up, and so do these companies' profits," President Obama explained last week, calling for higher taxes on oil companies.
"Meanwhile," he added, "these companies pay a lower tax rate than most other companies on their investments — partly because we're giving them billions in tax giveaways every year."
A new attack ad for an Obama-linked political group excoriates the oil industry for its "record profits and ... billions in special tax breaks."
On closer inspection, those profits turn out to be nothing special. Government policies have driven up the price of oil, which has boosted oil companies' total profits. But their profit margins — the best measure of industry profitability — remain modest.
As of the third quarter of last year, the oil industry earned just 6.7 cents per dollar of revenue, less than the average for all manufacturing of 9.2 cents (see chart).
This year, even after a spike in prices, the oil industry ranks 90th in profitability out of 215 industry groups. "Big Oil"? How about "Just Average Oil"?
This is just one of the tricks used by the left to tar the industry, which employs 9.2 million people and accounts for 7.7% of the total U.S. economy.
As for "billions in subsidies" — oil gets $4 billion a year, a drop in a very large bucket, and far less than the $29 billion-plus a year for so-called alternative energy.
Hit the oil industry with higher taxes and punish them with regulations — as the Obama administration proposes to do — and you will hurt economic growth and kill potentially hundreds of thousands of jobs.
Further, Obama's charge that oil companies pay "a lower tax rate" than "most other companies" is simply false. Oil and gas companies in 2010, the last year for which all data are available, paid 41.1% of their net income on income taxes. That compares with 26.5% for other industrial companies listed by Standard & Poor's.
And it doesn't include oil industry payments of rent, royalties and leases to the government, which have totaled $100 billion since 2000. Nor does it include $2 trillion in oil industry investments since 2000.
Demonizing profits is foolish. Profits signal companies that they need to produce more. Profits encourage the industry to use the most efficient, clean methods possible, and to boost pay for their workers and dividends for their investors. Aren't these good?
Mutual funds today own an estimated 30% of all oil shares, while pension funds hold 27%, individuals 23% and IRAs 14%. Basically, anyone who owns a mutual fund or a broad retirement portfolio almost certainly owns oil shares. They all benefit from higher profits.
As turns out, Big Oil isn't some abstract entity. It's you.
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