What Is A Windfall Profit? is similar in sentiment to something I wrote in a previous iteration of this blog. The WSJ version is better.
Tuesday, June 10, 2008
Windfall Profits Taxes are a Bad Idea
Google (GOOG) and Goldman Sachs (GS) should be very worried. Obama again today said that he would if elected impose windfall taxes on the oil industry.
"I'll make oil companies like Exxon (XOM) pay a tax on their windfall profits, and we'll use the money to help families pay for their skyrocketing energy costs and other bills," the Illinois senator said.
I don't understand why he or anyone else thinks this is a good idea. What he is really doing other than currying favor with voters is punishing Exxon for being big, and lucky to be in an industry that is in tight supply right now.Last fiscal year, Exxon made $40 billion net. Yes, that is a lot of money.GOOG and GS, two fine and revered American companies only made $4 billion and $11 billion respectively.
GS's net profit margin, after all costs including taxes, was 13% last year.
Google's was 25%. Exxon's was only 10%.Economists, but maybe not Obama's economists, would tell you that this is a very silly time to disincentive the oil companies from producing more oil, as I hear happened back in the 1980's. I was young then. Mr. Supply and Mr. Demand are running most of the economy. If the powers that be want to help the market in the right direction, they need to:
- encourage less energy use (demand)
- encourage more production of traditional forms of energy to the extent we don't wipe out the environment (supply)
- vigorously encourage development and production of alternative forms of energy (supply)
Instead, Obama is promising to punish Exxon for being big and fairly profitable and telling U.S. consumers, "Go ahead and use all the energy you want."
Smaller, very profitable American companies should hurry up and figure out a way to make less money.
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