Eight freshmen Democratic Senators are proposing a “windfall profits” tax on oil companies.

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.

The article specifically mentions ExxonMobil’s first quarter profits of $9.28 billion.  Sounds impressive, right?  Gas prices are high and they’re raping us, right?  Wrong!  Exxon’s total first quarter revenue was $87.2 billion, which means that their profit margin was a meager 10.6%.  Yes, Exxon’s total profit sounds huge, but they incurred costs of $77.9 billion in the course of their business (including $7 billion in income taxes), which involves more than just selling gas by the way.

In the business world an 11% profit margin is not very high.  To give you a bit of perspective tech icon Google reported a first quarter profit of $1 billion on a revenue of $3.7 billion.  That gives them a profit margin of 27%.  If Sen. Casey and his compatriots increase the oil companies’ cost basis they will simply pass that cost on to you and me.

I believe that Casey et al. know that their plan is harmful to Americans, but they don’t care.  Their motive is two fold.  one, they can score some political capital with people who are economic idiots - our government schools have seen to it that there are plenty of them.  (Not the teachers fault, by the way.  It’s the curriculum that is woeful at preparing kids with the most basic business acumen.)   Casey also seeks to increase the power of government by growing tax revenue.  Repealing tax “loopholes and breaks” is the same as raising taxes on those companies.  Again, that money comes out of our pockets eventually and into government coffers where politicians like Casey use it to increase the welfare state and buy votes with pork.

Neither the article nor Casey mentioned that the national average for state and federal taxes is 45.5 cents per gallon.  This guy, who apparently favors price controls for the industry (think of gas lines), calculated that Exxon makes about 29 cents of profit on each gallon of gas.  I’m not going to check his numbers.  I think given his view on the matter its safe to say that he isn’t padding his number down.  The government is making over 1.5 times what Exxon (supposedly) makes on every gallon of gas and Casey thinks we should raise taxes.

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This entry was posted by Brian on Saturday, April 28th, 2007 at 2:32 pm and is filed under Dumbest Legislators, Energy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site. Please note the copyright policy.