Talk of a windfall tax on oil companies is surfacing as the companies are reporting their latest quarterly revenue. The concern is that while American consumers are facing much higher energy costs, especially for heating oil and natural gas, the oil companies are reporting record-high profits.
“Some might call it a novel approach for me, but I cannot sit back in good conscience while those in our society struggling to heat their homes are being left in the cold by oil companies,” Sen. Judd Gregg (R-NH), chairman of the Senate Budget Committee, said in a prepared statement.
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ExxonMobil posted a $9.92 billion profit on $100.72 in revenue for their third quarter for a 9.8 percent profit according to the Pittsburgh Post-Gazette. The U.S. Department of Energy reports that refining costs and profits combine to comprise 15 percent of a single gallon of gasoline. State and local taxes usually comprise about 27 percent of that gallon of gasoline. The federal tax bite out of each gallon of gasoline is 18.4 cents per gallon.
A Tax Foundation study released in late October shows local, state, and federal gas tax collections far exceed oil industry profits. Consumers have paid $1.34 trillion in gas taxes since 1977. This number is more than twice the profits of all major oil companies in the U.S. combined over the same period. The New Hampshire Union Leader reported last year alone, $58.4 billion in state and federal gas taxes were collected while the profits of all major oil companies came to $42.6 billion.
The Pittsburgh Post-Gazette reports that ExxonMobil reported third quarter income totaling $9.92 billion, up 75 percent from the same quarter a year ago. ExxonMobil is the largest oil company in the world. Royal Dutch Shell PLC is the world’s third largest oil company and reported that its profit went up 68 percent to $9.03 billion on $76.44 billion in revenue. Operations provided most of both these companies’ record high profits.
In response to these profit numbers, Sen. Bob Frist (R-Tennessee), the Senate majority leader, requested the chairmen of three Senate committees to study high energy prices. Frist also said that he might sponsor a federal anti-gouging law.
“If there are those who abuse the free enterprise system to advantage themselves and their businesses at the expense of all Americans, they ought to be exposed, and they ought to be ashamed,” Frist said in a prepared statement.
Secretary of Energy Samuel Bodman appeared before a Senate panel saying that the administration is considering the creation of regional stockpiles of refined petroleum products like gasoline, diesel, and jet fuel, according to the Pittsburgh Post-Gazette. This action would require the oil industry to set aside these fuel products and potentially lead to higher fuel prices for consumers. He called for a boost in crude oil refining capacity to ease future surges in fuel prices. Bodman also said the administration has no plans for a windfall tax.
Oil industry officials oppose the idea of the stockpiling of gasoline, diesel, and jet fuels according to the Pittsburgh Post-Gazette. Their argument is that their business is cyclical and their current investments in capacity may not yield oil or gas for several years. Investment in new production has usually come with lower commodity prices as well.
The demand for oil continues to rise as emerging industrial nations such as China and India gather capacity along with other developed countries. According to the Pittsburgh Post-Gazette, the industry’s under-investment in the natural-gas infrastructure in this country has not kept pace with rising demand and helped create the current bottleneck in the supplies. The Gulf hurricanes were directly responsible for the current prices. One thing for sure is that this situation is not a quick and easy fix.
A cut in gas taxes may be a quicker resolution to help consumers instead of enacting a windfall tax on the oil companies. There would be consequences and benefits though. It would be an instant drop in consumer prices but would provide less money for road construction and maintenance overall. On the positive side, working with less revenue may force local, state and federal governments to spend more wisely. On the negative side, a windfall tax of any kind may cause a cut in oil industry investment. If refinery capacity was hit, gasoline prices might rise instead of dropping. A windfall tax would also have far reaching implications and possibilities for consumers.
Check out your particular state’s taxes on gasoline and diesel fuel by accessing the web site www.gaspricewatch.com/usgastaxes.asp. The American Petroleum Institute provided the numbers for this web site.