Profit-taking by Uncle Sam
I don't know if you've noticed this, but while I was out and about today I saw that gas prices are edging back up again. What were numbers in the $1.50 range a month or so ago are now creeping back up into the mid-$1.80's at some stations I witnessed along U. S. 50.
In the meantime, the buzz around our nation's capital has centered on the tax difficulties encountered by several of President Obama's nominees and the fate of the so-called stimulus package in the Senate.
But a few months ago you'll likely recall that gas was north of $4 a gallon and Exxon/Mobil was making what many termed obscene profits because of the price spike in crude oil futures. Last May, a bill (S.2971) was introduced which would, in part install a "temporary fee on excess oil profit":
(a) In General- In addition to any other tax imposed under this title, there is hereby imposed on any applicable taxpayer an excise fee in an amount equal to 50 percent of the excess profit of such taxpayer for any taxable year beginning during 2008.
(b) Applicable Taxpayer- For purposes of this chapter, the term `applicable taxpayer' means, with respect to operations in the United States--
(1) any integrated oil company (as defined in section 291(b)(4)), and
(2) any other producer or refiner of crude oil with gross receipts from the sale of such crude oil or refined oil products for the taxable year exceeding $1,000,000,000.
The reason I bring this up now is because forecasting the effects of legislation sometimes takes awhile, and this week a study was released showing the possible consequences of such a tax on our domestic energy industry.
Some of the negative effects included:
an estimated average decline in domestic crude oil production of approximately 21-26% from baseline levels... over the 2010–2030 period. The loss in domestic crude oil production would result in imports of crude oil increasing by 13-18% over baseline levels...
a decline in domestic natural gas production of between 1.6-2.4 Tcf (9-13% from baseline levels) by the period 2020-2030. This loss in domestic production would in part be offset by greater reliance on foreign imports with imports increasing between 0.5-1.2 Tcf (14-55% over baseline levels) during the period 2020-2030.
By 2030, the proposed legislation is estimated to cause a net loss of between 370-490 thousand total jobs from baseline levels. Regions around the U.S. would be disproportionately affected.
By 2030, GDP, a commonly used measure of total economic activity, is estimated to decline below the baseline by approximately 0.5-0.9 % or $140-240 billion.
These would be just some of the predicted effects over the next twenty years should this idea be resurrected in the 111th Congress as a desperate bid to pay down our deficit spending.
Obviously I realize that this is representative of the energy industry's view of the subject and undoubtedly they have their own self-interest in mind. But why shouldn't they? It's obvious by looking at some of President Obama's selections for high government office that they don't want to pay taxes either!
Yes, I know that last sentence was a partisan cheap shot, but there's a larger point to be made here as well.
Even the most laissez-faire capitalist has to admit that the idea of others making profit is maddening at times. No one liked to pay $4 or more for a gallon of gas; however, that was reflective of the predicted cost of oil companies and their retail outlets for doing future business. By buying gallons out of their storage tank, you were paying for the future gallons to replace that supply you were putting into your own gas tank for your use. In any business, at least some of what you pay for an item on the shelf has to reflect its replacement cost.
I have the strongest of objections to ANYONE telling me how much money I can make, so I think it's wrong to penalize someone for making what they arbitrarily consider too much profit. It brings the insidious progressive nature of individual taxation to the business world, and corporate taxes in America are already too high!
So don't discount the conclusions drawn by this study as simple Big Oil propaganda. There are real-world effects which occur when government draws up new revenue sources and this is yet another illustration of what can happen to a viable sector of the economy.
As we've found in Maryland over the last 13 months, the predictions by government can be woefully wrong when they have a stake in the outcome. They just happen to have the force of law behind them.
All that the energy companies can do is react to the conditions they're given to work with and give fair warning when they predict their business climate will turn much more adverse. That's why this study was commissioned, and why it's worth considering as our energy prices swing upward again.