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Protecting Oil Company Profits

Carly Fiorina, John McBush spokesperson and CEO fired from her job at Hewlett Packard in 2005, just stated on CNN that taxing the windfall profits of oil companies, as Barack Obama suggests, would raise the price of gasoline.

Bull!

"Windfall Oil Company Profits" are not a factor in the cost of gasoline, they are a remainder after the gasoline is produced and sold, and Ms. Fiorina appears to be paying homage to the long-standing Republican tradition of lying by saying otherwise.

In the twisted, fantasy business world Fiorina lives in (which may help explain why she was fired from her post at Hewlett Packard) reducing profits increases the cost of acquiring oil, and/or the cost of producing, marketing, and distributing gasoline.

Nope, it reduces the billions of dollars in profits that oil companies are making off the backs of everyday American citizens, but is not a factor in the cost of production or distribution.

Liars on the right... when will they stop?

Related: (Oil giants keep billions in tax breaks):

With oil companies receiving more than $4 for each gallon of gas they sell, Senate Democrats today tried to eliminate the $17 billion in tax breaks Congress has awarded them in recent years.

It also imposed a windfall profits tax.

But Republicans wanted nothing to do with either. In a largely party line vote, they blocked the Democrats' attempt to bring the tax issue to a vote, so it died on the Senate floor.

For the record, Republicans Kit Bond of Missouri and Sam Brownback and Pat Roberts of Kansas all basically voted to continue the oil company tax breaks. Missouri Democrat Claire McCaskill voted to kill them, the tax breaks that is.

"...if the choice is to do nothing, then I hope the people of this country rise up and scream like they've never screamed before," she said on the Senate floor. "How...dare us do nothing? That is what they're ready to vote on, saying, 'We're not going to let you proceed to do something about this problem.' It take a lot of nerve, Mr. President, it takes a lot of nerve."

"I'm from the Show-Me State," Bond said in a statement after the vote, "and you can't show me a time when raising taxes on something lowered its price or increased its supply. With $4 a gallon gas, we need real solutions that open up supplies of energy here at home and give American families the relief they need."


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Comments (11)

Peter F.:

In the twisted, fantasy business world Fiorina lives in (which may help explain why she was fired from her post at Hewlett Packard) reducing profits increases the cost of acquiring oil, and/or the cost of producing, marketing, and distributing gasoline.

Nope, it reduces the billions of dollars in profits that oil companies are making off the backs of everyday American citizens, but is not a factor in the cost of production or distribution.

And under what economic model on earth would those companies not offset those profit losses by increasing prices at the pump through their dealers (aka: distributors) in order to maintain a reasonable and workable profit margin? Answer: None. Second, with less profits to go toward capital investments like exploration to find and tap new sources of oil, R&D and so on, production WILL slow, thus slowing the flow of supply and increasing demand, which equals higher prices at the pump. That ain't fantasy, that's just economic reality.

Furthermore, as someone who constantly rails about the government interfering in our lives, you support the government arbitrarily deciding what constitutes a "windfall"? That's pretty interesting. It's the equivalent of saying "You know what, Lee, in my opinion, I think you made too much profit last year. Here, give it to me. I'll know better what to do with it." And do think ANY OF US will see DIME ONE of that "windfall tax" from the government? You live in a dream world if you do. And what stops that government from applying "windfall" taxes to things like milk, shoes, water, heck, even gummy bears after that? Absolutely nothing.

Look, Lee, I'm just as concerned over the price at the pump as you are. I don't like it one bit.
But a windfall tax is just political posturing and donothingness; it isn't the answer or even AN answer. I think a tax is needed, and I think Charles Krauthammer has a good place to start.

Lee Ward[TypeKey Profile Page]:

"And under what economic model on earth would those companies not offset those profit losses by increasing prices at the pump through their dealers (aka: distributors) in order to maintain a reasonable and workable profit margin?"

Think it through, Peter.

Gas prices a year ago were lower when when oil profits were lower.

But if profits are lowered now, gas prices will go higher?

It's nonsense, or to put it less politely, it's total bullshit.

There is no cause and effect that creates higher costs of production and distribution when profits are lowered.

"Furthermore, as someone who constantly rails about the government interfering in our lives, you support the government arbitrarily deciding what constitutes a "windfall"?"

Who says it will be arbitrary? I'm sure a sensible, bi-partisan approach could be found.It's not the first time windfall profits have been taxed.

It's the equivalent of saying "You know what, Lee, in my opinion, I think you made too much profit last year. Here, give it to me. I'll know better what to do with it."

Yes, the oil companies are literally banking on dinosaurs as their business model.

Puns aside, they have no inalienable right to higher profits that they have done nothing to earn -- that's the idea behind a "windfall tax" - it's a "windfall" if they've done nothing to earn the new, higher profits.

John S:

"There is no cause and effect that creates higher costs of production and distribution when profits are lowered."

No, but make a product unprofitable and the producer can refuse to sell it here. China and India will pay the price they need to cover the cost of crude oil.

A windfall profits tax on the petroleum industry has already been tried and it was a unqualified disaster. (Google Jimmy Carter.) Prices went up, refined products disappeared, people sat up to 8 hours in gas lines, which finally led to odd/even day rationing and NO weekend sales in the summer of 1979. It's documented history.

It's also a guaranteed scenario that would make your President Black Jesus very unpopular. The sole positive outcome of the last windfall profits tax is that it led DIRECTLY to the election of Ronald Reagan.

Lee Ward:

"A windfall profits tax on the petroleum industry has already been tried and it was a unqualified disaster. (Google Jimmy Carter.) Prices went up, refined products disappeared, people sat up to 8 hours in gas lines, which finally led to odd/even day rationing and NO weekend sales in the summer of 1979. It's documented history."

I see the Republican talking point of skewering Jimmy Carter is well underway.

8 hour gas lines were back in 1973-1974. Jimmy Carter was President from 1976-1980, and the windfall profit tax proposed by Carter (it was called the "crude oil windfall profit tax") wasn't put into effect until April, 1980.

So tell me about your documentation, JohnS -- pssst, you might want to Google it yourself.

The "failure" of Carter's windfall profit tax lay solely in the fact that it didn't produce nearly as much revenue as it was hoped.

Now, think about it. In order for a windfall profit tax to not succeed that means that there were less windfall profits than anticipated.

And that's a bad thing? Windfall profits were lessened, and therefore the tax didn't generate as much revenue.

Repeating -- windfall profits dropped.

"The sole positive outcome of the last windfall profits tax is that it led DIRECTLY to the election of Ronald Reagan."

What ARE you smoking?

By the way, the tax was repealed in 1988 (by Reagan). You can Google it, John. Here, let me help:

Because oil prices have fallen so sharply since 1980, by more than 50 percent, the tax now yields no revenues to the Treasury.

And that's a bad thing? Oil prices dropping 50 percent?

Sheesh. You spend too much time in the right wing echo chamber....

There may be good reasons to avoid a windfall profit tax -- but the fact that Obama is pushing for it isn't enough a reason to sway me, sorry.

And 8 hour gas lines etc... that's just plain hooey. Step away from the kool-aid!

Peter F.:

Gas prices a year ago were lower when when oil profits were lower.

So? You're speaking strictly in terms of sheer dollars in profit, so yes, profits are higher. But not in terms of profit margin, approx. 10% as a percentage of revenue. (Just about average for any company with a good business model.)

But if profits are lowered now, gas prices will go higher?

I NEVER suggest profits should be lowered. I said don't place a windfall tax on them.

There is no cause and effect that creates higher costs of production and distribution when profits are lowered.

I just explained it to that, yes, there is a cause and effect relationship. Do we have an actual working model? No. Why? Because this fixing a windfall profit tax has never been done before. (I'll tell you what, my pops is a bit of economics and financial geek who knows this stuff inside and out. He may not have an answer because he may not know the industry very well, but I bet he can provide some better answers.)

Who says it will be arbitrary? I'm sure a sensible, bi-partisan approach could be found.It's not the first time windfall profits have been taxed.

Oh be real. Any number the gov't comes up with will be arbitrary. I can see the debate now: "Gee, Sen. Soandso, what's a fair percentage to tax? 3%? %5.25%? How about 8.35%?" Any way you slice it, it defeats the purpose of owning a business in the first place and goes against the rules of capitalism in the most egregeious manner possible: it punishes success. And that's patently un-American.

Puns aside, they have no inalienable right to higher profits that they have done nothing to earn...

Come on, Lee, that's just silly. You can say the same thing about Microsoft, Starbucks or Sun Microsystems. And each one of those companies did a lot to earn their profits through solid business planning, management, distribution, marketing, accounting, all of it. And the same goes for the oil companies.

hat's the idea behind a "windfall tax" - it's a "windfall" if they've done nothing to earn the new, higher profits.

Again, who decides that they've "done nothing"? Again, the government. And you, of all people, want to entrust the government to make that decision? The government would have to prove they've done nothing.

More importantly, those are just the simple questions that lead to other massively complex questions such as when is the tax applied, regulated, legislated, auditing, all kinds of complex questions. And guess where a lot of the windfall tax revenue would go? Right back into running the offices needed to oversee it...

In word, ack!

Peter F.:

Lee,

You should find this assessment of The Crude Oil Windfall Profit Tax of the 1980 interesting.

http://opencrs.cdt.org/document/RL33305

And that's a bad thing? Oil prices dropping 50 percent?

No, it's not. However, there were many other economic reasons that explain that drop other than simply implying that the The Crude Oil Windfall Profit Tax of the 1980 was the big reason behind the drop.

http://www.eoearth.org/article/Crude_Oil_Windfall_Profit_Tax_Act_of_1980,_United_States

http://www.taxhistory.org/thp/readings.nsf/cf7c9c870b600b9585256df80075b9dd/edf8de04e58e4b14852570ba0048848b?OpenDocument

Wanderlust:

Lee, I'll have to admit, you are always good for a chuckle.

Unfortunately, your memory is just a little bit off, regarding gas rationing lines: I remember that there *were* lines and sales on alternate days in 1979. I also remember stagflation (21% in 1980) and how desperate people were to get bond-subsidized mortgages at the "low" rate of 15%.

I'll let you argue your point, Lee.

Think it through, Peter.

Gas prices a year ago were lower when when oil profits were lower.

But if profits are lowered now, gas prices will go higher?

It's nonsense, or to put it less politely, it's total bullshit.

There is no cause and effect that creates higher costs of production and distribution when profits are lowered.

Two lessons for the business challenged:

1. your quote of "Gas prices a year ago were lower when when oil profits were lower" ignores the fact that profits are a percentage of sales, including cost of goods sold - and ignores the fact that the market sets oil prices, not the oil companies, and that the largest market maker is OPEC. Oil company profits are generally 8% of sales, which by the standards of the Street is very modest. Typical companies earn 10-20% profit on sales.

2. Reducing profits reduces money available for investment in new plant, new technology, and cost reductions. In short, reducing profits eventually starves a company into exiting the market - exactly what happened in the US in the late 1970's.

But hey, never let the facts of simple economics get in the way of a good Leftist talking point, right?

No wonder so few people read this blog...

Steve Crickmore:

Perhaps the Democrats oil companies `windfall tax` proposed measure would have more resonance with the American people, and be less likely to be voted down by the Republican senators if it were called what it properly is... a `war profiteers` tax as Greg Palast suggests. The big oil companies, and war resource compainies like Haliburton earnings, shares and profits have shot up since the invasion five ago and continue unabated..(some brief wind)..Greg Palast:

I wish to hell the Democrats would call their plan what it is: A war profiteering tax. War is profitable business - if you're an oil man. But somehow, the public pays the price, at the pump and at the funerals, and the oil companies reap the benefits.
Jeff:

If you have a 401K or a pension account and invest in mutual funds you are "a oil company owner". Oil companies are are shells for investors which in this case are mostly middle class working people and their pension funds.
They are making "record" profits because we are buying more gasoline every year, PERIOD. If we buy less gas they will make less money.

What is a windfall profit ? Is that like when you invest in a stock at 10 and sell it at 30 ?
Or you buy a house in a sleepy little town that becomes the place to live in 10 years and you can sell it for 10 times what you paid ? Apparently 8% per year is considered a windfall so anything else you do that earns more than that should also be taxed as a "windfall" right ?

Lee Ward[TypeKey Profile Page]:

Peter F: "But if profits are lowered now, gas prices will go higher?"

"I NEVER suggest profits should be lowered. I said don't place a windfall tax on them."

The subject of the post is, in part, Fiorina's lie that imposing a windfall tax on oil profits will cause gas prices to increase. I'm glad you're not making that argument, because it's false.

Wanderlust: "I remember that there *were* lines and sales on alternate days in 1979."

The cause was Iran stopped oil production after being invaded by Iraq. Yes, you remember gas lines briefuly in 1979, they had absolutely nothing to do with the windfall profit tax.

"your quote of "Gas prices a year ago were lower when when oil profits were lower" ignores the fact that profits are a percentage of sales"

Irrelevant to the argument at hand. Yes, I ignore it, because it has no bearing on the discussion around Fiorina's statement lie that windfall profit tax will raise the price of gasoline.

You can argue over whether we should impose a windfall tax, just don't use the lie that it will raise the price of gasoline.

"Reducing profits reduces money available for investment in new plant, new technology, and cost reductions. In short, reducing profits eventually starves a company into exiting the market - exactly what happened in the US in the late 1970's."

The cost of exploration and new drilling is a pre-tax expense. If they were actually investing money in these areas their profits wouldn't be so large.

I believe the Democratic proposal that was shot down by Republicans yesterday had provisions that required investment in alternate technologies.

"But hey, never let the facts of simple economics get in the way of a good Leftist talking point, right?"

Feel free to pose a cogent reply anytime, but your simpleton economics are just more Republican bullshit.

Jeff: "They are making "record" profits because we are buying more gasoline every year, PERIOD. If we buy less gas they will make less money."

They are making record profits because the cost of gasoline has risen while the cost of production, distribution and marketing have remained flat.

In other words, they've done nothing to warrant higher profits - it's a "windfall."

Wanderlust:

Lee wrote:

"Irrelevant to the argument at hand."

[snip]

"Feel free to pose a cogent reply anytime, but your simpleton economics are just more Republican bullshit."

If your logic, which ignores basic economics, is what counts for a "cogent" argument around here, forget it, Lee. I suppose my MBA (Tulane, 1998) counts for nothing, since one's political preferences trumps anything to do with economics, right?

By the way, when you are done insulting me, know this: I work every day with teams of finance, accountants, lawyers, and engineers, on multi-million dollar contracts. I see every day, first hand, the results of economic decisions (political or otherwise) that make or break investors - including ones who invest in 401(k) plans.

If you want to disparage the business world, Lee, move to Russia or any number of Islamic countries. Otherwise, I suggest you grow up and start learning about business and economics before you so ignorantly label it "Republican bullshit".


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Publisher: Kevin Aylward

Editors: Lee Ward, Larkin, Paul S Hooson, and Steve Crickmore

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