This is very interesting:
A group of eight freshman Democratic senators have introduced legislation that would impose a windfall profits tax on oil companies and revoke some government subsidies.The legislation, proposed by Sen. Robert Casey, D-Pa., would impose a 50 percent tax on profits after oil prices rise above $50 a barrel. It also repeals tax "loopholes and breaks" from legislation signed into law in 2005, Casey said Thursday.
Besides Casey, the other co-sponsors include Jon Tester (D-MT), Bernie Sanders (I-VT), Claire McCaskill (D-MO), Sheldon Whitehouse (D-RI), Sherrod Brown (D-OH) and Amy Klobuchar (D-MN), and Jim Webb (D-VA).
You can read Jim Webb's entire statement on the "windfall profits" tax on the "flip." To put this in a bit of context, ExxonMobil's first quarter 2007 profits reached $9.3 billion, 10% higher than the first quarter of 2006. I also find this interesting:
The company has been a cash-generating machine as crude-oil prices have surged in recent years. Some of that money has gone toward repurchasing shares. Exxon bought another 108 million shares in the first quarter, spending $7 billion. That cut shares outstanding by 1.7%.
That's right, as ExxonMobil's profits have surged, the company has used them not so much to redouble its search for oil and gas, but to buy back its own stock. Lovely.
By the way, while I strongly agree with the concept of slapping a windfall profits tax on the oil companies' exorbitant profits, I do NOT at all agree that this will help us to "[reclaim] our energy independence" or to "take the sting out of these rising prices," as Sen. Webb's statement says. To the contrary, if anything the oil companies might even cut their production in reaction to a "windfall profits" tax. If they do, that will make us, ceteris parabis, MORE dependent on foreign oil and causing oil prices to increase.
If we really want to kick our oil addiction, we all know what we have to do - use a lot less oil (we currently consume over 21 million barrels per day in the U.S.) through a combination of automobile fuel efficiency, renewable energy, smart growth, reduction in miles driven, etc. We can also try to produce more oil domestically, but that won't change the equation much given that the U.S. is a "mature" oil province.
Finally, I would point out that not one oil analyst I've talked to (or read) believes that higher oil prices since 2003 have resulted primarily from the invasion of Iraq. Iraq is producing about 600,000-700,000 barrels per day less than it was producing pre-war, out of total world production of 86 million barrels per day. Based on the "rule of thumb" used by the U.S. Energy Information Administration, the increase in oil prices directly attributable to Iraq would be about $4 or $5 per barrel out of the approximately $40 per barrel oil price increase since 2003. Other "market psychology" factors arguably might be adding a few dollars per barrel more, but at the absolute most, one could plausibly argue that 20%-25% of the oil price increase since 2003 stems directly or indirectly from the Iraq War (more likely, Iraq accounts for about 10% of the increase).
Still, even a $5 or $10 per barrel increase in crude oil prices would imply significant "windfall profits" by the oil companies thanks to the Iraq War, while we spend hundreds of billions of dollars - and thousands of lives - to fight over there. I see no reason why Big Oil shouldn't pay its fair share of this war, since Big Oil is deriving a significant benefit from it.
Now, here's Webb's press release:
Webb Co-Sponsors Energy Security & Oil Company Accountability ActWASHINGTON, DC- Upon the release of increased first-quarter earnings by the big oil companies, Senator Jim Webb (D-VA) today co-sponsored the Energy Security & Oil Company Accountability Act to address rising gas prices that are placing a heavy burden on consumers.
"Today's prices at the pump are largely the result of the politics and instabilities in the Middle East," said Senator Webb. "When we went into Iraq, oil was $24 a barrel, today it's $66 a barrel. This escalation, which has provided an unearned windfall for big oil companies, hits the consumer hard. We need to take the sting out of these rising prices by reclaiming our energy independence.
"The bill that we're introducing today recoups some of the skyrocketing corporate profits of the big oil companies, invests in alternative energy sources, and eases the burden of low income Virginians at the pump," said Webb.
A major provision of the bill is that excess profits of major integrated oil companies are taxed at a rate of 50% of the profits that they make off the portion of oil priced above $50 per barrel.
The bill was introduced by Senator Bob Casey (D-PA) today at a press conference with Webb and other freshmen Democratic Senators.
The Energy Security and Oil Company Accountability Act:
A) Creates the National Energy Security Research and Investment Reserve which funds biofuels research and biofuels infrastructure projects. Revenues are placed in a reserve so that money from closing tax loopholes and repealing tax breaks can be directed to specific energy programs. The Reserve is paid for by:
1. closing the Last In, First Out (LIFO) tax loophole
2. closing the Foreign Tax Credits loophole
3. repealing Sec. 344 of the Energy Policy Act of 2005, which provides royalty reductions for shallow water production at certain depths
4. repealing Sec. 345 of the Energy Policy Act of 2005, which provides royalty relief for deep water production
5. repealing Sec. 346 of the Energy Policy Act of 2005, which provides royalty suspension offshore of Alaska
6. repealing Sec. 1329 of the Energy Policy Act of 2005, which made the tax credit for amortization of geological and geophysical expenditures 7 years
B) Taxes excess profits of major integrated oil companies at a rate of 50% of the profits that they make off the portion of oil priced above $50 per barrel. The funds generated are used for the Low Income Transportation Energy Assistance Program (LITEAP) which helps pay for gasoline, diesel, or mass transit expenses. Like LIHEAP, each state would get a pot of money to distribute to low-income families with a cap of $1,500 per individual or $2,500 per family.
The bottom line question is this: "How do you make a private company act in the best interest of the world and not in the interest of itself and stockholders?"
Good question, anybody have any answers? I say that we get off our oil addiction, and let the oil companies figure out what other lines of business they want to go into...
I'm all for alternatives, especially nuclear--if the French can be 70% nuclear certainly we could if we wanted to...then there's that pesky waste issue. Which could also be solved if there was a national resolve to do so. If one of our modern nuclear powered aircraft carriers only has to refuel every 50 years (30-40 years for nuke subs), certainly this could be adapted elsewhere?
Everything else (solar, wind, corn, etc) doesn't provide any more than a fraction of the energy this economy needs to stay vibrant and growing. We're all living farther and farther from work, move more often, are more mobile and active in our leisure and anything that diminishes that puts a lot of people out of work. Airplanes, buses, semi's construction equipment will likely never be running on ethanol (especially planes since it freezes above 15,000 feet) so we're actually very limited in what we do at the moment.
I get sick every time I read one of these "profit" reports but honestly don't have any answers. There's a pure, simple basic economic reason windfall profit taxes rarely, if ever, work and that is that their cost always winds up on the back of the consumer as the company passes that cost on to us. I support Webb efforts to try again but have no reason believe the result won't be what he intends. Businessmen don't get rich by being stupid. I hope I wrong on this one.
I think the oil industry is only looking at this half-heartedly since they know additional refining capcity takes awy the excuses for raising prices now and then. It's funny how the price per gallon always drops right after the industry execs are explaining themselves in Washington then creeps back up again when no one is paying attention.
A solution for this is hard. Maybe public refineries? If they face competition, then maybe the current oligopoly will actually start building refineries.
And I'm glad to see that they're planning on using some of the tax revenues to invest in alternative energy.
--Exxon is giving Lee Raymond one of the most generous retirement packages in history, nearly $400 million, including pension, stock options and other perks, such as a $1 million consulting deal, two years of home security, personal security, a car and driver, and use of a corporate jet for professional purposes.--
Citizen's for Tax Justice put together a study of corporate taxation during the Bush Administration. According to their calculation, General Electric has been the biggest beneficiary of tax breaks to the tune of $9.5 billion in the 2001-2003 periods. Also according to their study, on an industry basis, Aerospace and Defense has the lowest effective tax at 1.6%. You can find the full study here: http://www.ctj.org/c...
Are we trying to make corporate taxation fair or are we just trying to punish oil companies? If we are going for fair, then we should tackle the corporate tax code as a whole. The biggest tax break we give to corporate filers is something called MACRS, the Modified Accelerated Cost Recovery System. It allows companies to expense a great deal of their capital expenditures in the first three years in which the capital expenditures were incurred. Without going into a lot of accounting detail, suffice to say this is ridiculous for long-life assets.
I would suggest that instead of MACRS companies be required to use the same depreciation method they use for financial reporting purposes. Or if they are not required to prepare audited GAAP statements, then it should default to straight-line depreciation.
To your point about technology, useful life is different by asset classification. So even for straight-line depreciation, you recognize a higher depreciation expense for short-lived assets.
Also, what constitutes a windfall? ExxonMobil's profit margin as of the most recent quarter was 10.6%. The Chicago Mercantile Exchange's profit margin was a whopping 39.1%; and Google's was 27.3%. Hedge funds can make phenomenal profits for their investors. And private equity companies that buy and resell public companies make tons of money from relisting. So, are those windfalls too? If we are talking commodities only, why not set a "windfall" tax for every commodity like lean hogs, corn, sugar, coffee, natural gas, gold, silver, etc...?
That's right, as ExxonMobil's profits have surged, the company has used them not so much to redouble its search for oil and gas, but to buy back its own stock. Lovely.
According to ExxonMobil's last 10-K filing, they spent a total of $16.2 billion on capital and exploration expenditures in their upstream divisions (exploration & production). In your assessment, is that inadequate? In reviewing ExxonMobil's portfolio of developed and undeveloped acreage, do you feel that there are areas they are not optimizing their E&P activities?
Second as a public company, if you cannot find suitable projects (i.e. meeting the company's standard rate of return) to invest your cash in, what should you do? Let's go a little further and say that you have already determined all of your financing needs and still there is excess cash. Should you keep that and invest in short-term securities or should you return it to investors? Keeping in mind that owners have not invested in your company under the assumption your business would be like a commercial bank, why then is it wrong to distribute that money back to investors?