American Elephants

Don’t Blame Me! Blame The Oil Industry! by The Elephant's Child

In his weekly address yesterday, the president went after the oil companies. With the price of gas at the pump doing real damage to his approval rating, Obama is not about to let anyone blame him for the high price when there is hated Big Oil to blame.  I mean everybody hates Big Oil don’t they?  And you can remember all the times that Obama took responsibility for things that didn’t go well.

As oil and gas companies make tens of billions in profits and the government scours the budget for savings, President Obama called on Congress to stop handing them $4 billion annually in taxpayer subsidies. America’s oil production last year reached its highest level since 2003, but we need to invest in the energy of the future, instead of subsidizing the energy of the past. …Of course, while rising gas prices mean real pain for our families at the pump, they also mean bigger profits for oil companies. This week, the largest oil companies announced that they’d made more than $25 billion in the first few months of 2011 – up about 30 percent from last year.

The president added that” he doesn’t have a problem with any company being rewarded for their success”… but, he said he does “have a problem with the unwarranted taxpayer subsidies we’ve been handing out to oil and gas companies —to the tune of $4 billion a year.”

If you’re trying to shift blame, this sounds pretty good, except it’s a lie.  We don’t “subsidize” oil companies. When a business buys a big piece of machinery, or builds a building, or spends vast amounts of money to extract oil, the government has long recognized that those things have a finite life, and so they get to depreciate them on their taxes over time. Different things have different rules and different terminology, but one of the things that they are not, is taxpayer subsidies and the president knows it.

The impression is also that oil and gas companies don’t pay their “fair share” of income taxes.  Oil companies face a much higher tax burden than the highest corporate marginal tax rate of 35% because they also pay state income taxes and foreign income taxes at a rate of 41.1%.  There are also royalties, excise taxes, and other transfers to governments that aren’t included in that rate.

So if you wonder why business isn’t aggressively hiring and expanding, here’s one good example.  You follow all the rules, pay your taxes, and get attacked by the White House, which asks Congress to “stop subsidizing the oil and gas industry.”

Economist Mark Perry provides an interesting explanation of ExxonMobil’s profits and taxes.  The media has trumpeted the $10.65 billion in first quarter earnings, but neglected to explain that the company’s  6.1% average profit margin ranks #112 among all industries for the most recent quarter.  Internet providers captured 23%, periodical publishers 51.6%, and the silver industry 31%.

So don’t blame the laws of supply and demand.  Don’t blame the president for shutting off the supply of oil.  He’s doing it because he has the unfortunate idea that he can change the energy needs of the world with windmills.  Good luck with that one!

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