Big Oil, Big Profits
With the arrival of record gasoline prices, America has finally turned its attention to the problem it faces when it comes to energy. America is a growing country and is the engine of the world's economy. In order to continue to grow and prosper, America needs energy. Today's technology makes it possible for energy to be generated from the wind, the sun, nuclear reactions, and other sources. Yet today, by far the most cost-effective and efficient source of energy comes from the hydrocarbons oil and natural gas. But with the high cost of such commodities today, the large companies that supply oil and gas have come under fire for the record profits they are generating.
Congress's response has been predictable. Senator Obama has called for a "windfall profits tax" on "Big Oil" companies and other Democrats in Congress have suggested that the federal government nationalize and run the oil refineries in America. Such "solutions," while resonating with Americans who love to hate big business, will not solve the problem of high energy prices. In fact, they will make them worse. Simple logic and economic principles dictate that if one taxes something, in this case oil and energy, one will receive less of it. If it becomes more expensive to create and buy energy because more taxes are imposed or the federal government starts to intercede, supply will decrease and prices will rise. The law of supply and demand is basic economics, no amount of tax or regulation can get around it.
What is lost in this debate is a sense of perspective on what "Big Oil" does, how they make their money and the consequences of their financial success. Oil companies such as Exxon and Chevron are constantly accused of "gouging" consumers at the gas pump by charging higher prices. Such arguments ignore the basic business principle that profits are the difference between revenue, the amount of money taken it by the seller, and costs, the amount of money needed to produce the product, in this case gasoline, and sell it on the market. While the revenue the oil companies receive from selling gasoline is certainly on the rise so are the costs associated with delivering gasoline to the market. When the cost of oil, the most significant ingredient in gasoline, is at a record level the price of getting gasoline to market is obviously higher as well. The actual profit on the sale of a gallon of gas the oil companies receive is quite small.
Compare the costs of a gallon of bottled water and a gallon of gasoline. A gallon of water, the most plentiful resource on the planet, costs about $3.35 while gasoline now costs about $4.00 per gallon. But think of the costs involved in bringing the respective products to market. Water only has to be filtered, bottled, and transported. In order to bring gasoline to market oil companies must first find oil, drill for it, transport the oil, refine in into gasoline, and transport it to gas stations. The costs associated with this process are must higher than those associated with bottling water, yet the cost difference is only $0.50-$0.75 per gallon.
In fact, an oil company makes $0.08-$0.10 per gallon of gasoline in profit. Such a profit margin is paltry compared with other American companies such as Coca-Cola and 3M. The oil companies are big in shear size, but they "gouge" their consumers a lot less than other companies.
It should also be noted that while oil companies make about $0.10 in profit from each gallon of gas sold, the federal government takes $0.18 per gallon of gas in taxes and the average state gasoline tax is about $0.28 per gallon. Therefore, the government makes a total of almost $0.50 per gallon of gasoline sold without incurring any costs. One should ask whether it is the oil companies or the government who are gouging consumers.
Big oil companies also bear a tremendous tax burden in America. In fact Exxon's 2007 tax bill was over $30 billion dollars. For a little perspective, the lower half of all taxpayers in this country paid a total of $27 billion in taxes in 2007. In other words, Exxon paid more federal taxes to the government than the total federal taxes paid by half of all Americans.
Big oil provides the hydrocarbons necessary to heat and cool homes, drive to work, and go about our daily lives. Taxing and regulating them may make some feel good for "sticking it to big business," but the result will be less energy and higher prices. Americans should appreciate the big oil companies for the products they provide, the high paying jobs they create, and the taxes they pay, not demagogue them.
Any comments or questions can be received at whyyouareaconservative@gmail.com
~ The Conservative Guy
Congress's response has been predictable. Senator Obama has called for a "windfall profits tax" on "Big Oil" companies and other Democrats in Congress have suggested that the federal government nationalize and run the oil refineries in America. Such "solutions," while resonating with Americans who love to hate big business, will not solve the problem of high energy prices. In fact, they will make them worse. Simple logic and economic principles dictate that if one taxes something, in this case oil and energy, one will receive less of it. If it becomes more expensive to create and buy energy because more taxes are imposed or the federal government starts to intercede, supply will decrease and prices will rise. The law of supply and demand is basic economics, no amount of tax or regulation can get around it.
What is lost in this debate is a sense of perspective on what "Big Oil" does, how they make their money and the consequences of their financial success. Oil companies such as Exxon and Chevron are constantly accused of "gouging" consumers at the gas pump by charging higher prices. Such arguments ignore the basic business principle that profits are the difference between revenue, the amount of money taken it by the seller, and costs, the amount of money needed to produce the product, in this case gasoline, and sell it on the market. While the revenue the oil companies receive from selling gasoline is certainly on the rise so are the costs associated with delivering gasoline to the market. When the cost of oil, the most significant ingredient in gasoline, is at a record level the price of getting gasoline to market is obviously higher as well. The actual profit on the sale of a gallon of gas the oil companies receive is quite small.
Compare the costs of a gallon of bottled water and a gallon of gasoline. A gallon of water, the most plentiful resource on the planet, costs about $3.35 while gasoline now costs about $4.00 per gallon. But think of the costs involved in bringing the respective products to market. Water only has to be filtered, bottled, and transported. In order to bring gasoline to market oil companies must first find oil, drill for it, transport the oil, refine in into gasoline, and transport it to gas stations. The costs associated with this process are must higher than those associated with bottling water, yet the cost difference is only $0.50-$0.75 per gallon.
In fact, an oil company makes $0.08-$0.10 per gallon of gasoline in profit. Such a profit margin is paltry compared with other American companies such as Coca-Cola and 3M. The oil companies are big in shear size, but they "gouge" their consumers a lot less than other companies.
It should also be noted that while oil companies make about $0.10 in profit from each gallon of gas sold, the federal government takes $0.18 per gallon of gas in taxes and the average state gasoline tax is about $0.28 per gallon. Therefore, the government makes a total of almost $0.50 per gallon of gasoline sold without incurring any costs. One should ask whether it is the oil companies or the government who are gouging consumers.
Big oil companies also bear a tremendous tax burden in America. In fact Exxon's 2007 tax bill was over $30 billion dollars. For a little perspective, the lower half of all taxpayers in this country paid a total of $27 billion in taxes in 2007. In other words, Exxon paid more federal taxes to the government than the total federal taxes paid by half of all Americans.
Big oil provides the hydrocarbons necessary to heat and cool homes, drive to work, and go about our daily lives. Taxing and regulating them may make some feel good for "sticking it to big business," but the result will be less energy and higher prices. Americans should appreciate the big oil companies for the products they provide, the high paying jobs they create, and the taxes they pay, not demagogue them.
Any comments or questions can be received at whyyouareaconservative@gmail.com
~ The Conservative Guy
posted by The Conservative Guy at
11:02 AM
0 Comments:
Post a Comment
<< Home