A Bad Idea

I'm going to take an unpopular stance and come to the defense of oil companies. Even if those top-hatted and monocled bastards have stuck it to us recently. Exxon Mobile made a record-breaking earnings of $40.6 billion last year. Many people believe it is because oil companies gouged customers during times where oil was scarce or colluded to raise prices in the wake of Katrina. Thus these earning are ill-gotten gains which rightfully belong to the people of this great land. In the interest of fairness and honesty and integrity and vote share, we need to enact a windfall profit tax to get them back.

While, it is certainly within the realm of possibility for them to have colluded to raise prices, I'm not convinced that they did. The Herfindahl Index is a way to estimate how competitive an industry is; a score of 10,000 would mean monopoly. The FTC calculated that oil refining in the US scores around 1,300 to 2,600. This would actually make it more competitive than the markets for batteries or cereals. I may be a conspiracy theorist, but this doesn't sound like the big oil companies would have had an easy time colluding.

US News reports that even though these companies are earning more than ever before, their profit margins are still not that much better than other companies (oil companies have about 7.6% profit margin while U.S. manufacturing has about 5.6%).

It would seem that even though oil companies are sticking it to us, it is because oil costs more. Which brings me back to the wind-fall profits tax that is becoming popular rhetoric among certain parties. I didn't realize this until I did some looking, but this tax has been enacted before. During the 80's this tax was expected to generate $383 billion, but didn't pull in more than $80 billion.

This tax will not the be the cure-all to high gas prices. It will only serve to discourage investment in oil companies which leaves the U.S. more dependent on foreign countries. It also , according to one study, reduces the pensions of people who have used stocks in their retirement plans.

Clinton is advocating the windfall profits tax. What irritates me beyond belief is the fact that she went to college, she has advisers that went to college. Someone should have told her that it doesn't matter who you tax, the tax burden is always the same. The windfall profits tax will fall on consumers even if they don't realize it. I get the feeling that politicians do know the economics of their policies but ignore it because they know what will get votes. Which is why I'm a conspiracy theorist, I guess.