Oil firms' profits too high
Bismarck Tribune
Editorial Board
November 4, 2005
Tradition says: When a hard wind blows through an orchard and ripe apples
fall to the ground, the farmer promptly gathers them up and is spared the work
of picking them off the trees, and it's called a windfall.
The major oil companies have had their own kind of windfall - nothing to do
with apples falling down but with the companies' profits from oil going up. The
wind in the windfall has come from market forces and even from hurricanes. The
benefit from the unexpected gain is certainly not to any farmer or any other
consumer but only to Exxon Mobil and the other majors. Exxon Mobil reported a
$9.9 billion profit for the past quarter. Together, the oil companies are
gathering $7 billion a month in profits.
We're a long way removed from a windfall of apples. This kind of profiting
sticks in the country's craw. It would be in the oil companies' own best
interest if they chose to invest a large amount of profit in production of more
energy so that maybe the price could come down.
The windfall profits are indeed provoking responses: Anger on the part of
consumers, and from lawmakers the threat of congressional action. It comes from
both Democrats and Republicans in Congress.
Senate Majority Leader Bill Frist has demanded hearings for energy company
officials to face questioning.
Sen. Byron Dorgan is leading the Democrats' response. The North Dakotan has
introduced legislation allowing for three years a 50 percent excise levy on oil
companies' profits when the price of crude oil exceeds $40 a barrel. There is
provision made in the bill for the companies to avoid the tax by the amount
they invest their profits in producing energy by drilling for oil or natural
gas, building new oil refineries or producing renewable energy forms. The
proceeds would be rebated to consumers under Dorgan's plan.
It's problematic that a law should coerce a corporation in its decision of
what it does with its profit. It can be argued that the federal tax code does
much the same thing, offering comparable incentives for business investment
rather than owing the corporation tax.
But energy companies, reporting a previously unheard of level of profit, are
not justified in simply turning the current level of earnings into
dividends.
The prices of gasoline, heating oil, other petroleum products and natural
gas should honestly reflect the relationship between supply and demand.
We've been down the road before of taxing windfall oil profits. The crude
oil windfall profit tax passed in 1980 produced a good deal of revenue during
its lifetime, but economics scholars have divided opinions over whether it was
this tax or market forces that gradually brought down the price of crude oil in
the 1980s.
The big concern now is whether consumers can afford to wait patiently for a
market adjustment.
I didn't know where the word "windfall" came from. Now I do. :) I get a bit
giddy when I learn something new. Back to the real world.
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