Friday, February 03, 2006

How much more regulation is left in the tank?

There's a been quite a bit of hubbub over Exxon's record profits for the fiscal 2005 year-- $36 billion at final count. (For a sense of scale, that puts them right above the 2004 GDP of Croatia, and ahead of Luxembourg, Iceland, and Estonia.) Some choice quotes:

- Senator Barbara Boxer (D-CA): "Working people struggle with high gas prices and [oil companies'] sacrifices appear to be nothing."

- House Speaker Dennis Hastert's spokesman Ron Bonjean: "The message is basically that while it's not the American way to punish success...what are [oil companies] doing to bring down the costs?"

- Senator Arlen Specter (R-PA): "We intend to do something about [rising prices to consumers]...It just may be time to legislate in this field."

Moreover, those ciritical of Exxon's profit level have called for an excess profits tax, and the FTC is looking into whether the oil companies varied production levels and manipulated prices.

Excess profits tax? Economics aside-- even if there were justification for imposing such a tax, how could you ever impose it in a non-arbitrary manner? At what level to profits become "excess?" (My cousin made a killing selling lemonade for $3 a glass last summer-- isn't that a bit "excess?") Is it on a percentage basis, or do we all just get intimidated by big companies that generate a lot of revenue simply because of their size and draw the line at, say $10 billion? Taxes don't help anyone outside of the people that levy them-- that much is easy to see. But they are a part of everyday life, so I think that all you can hope for is that they apply to everyone equally. With this excess profits tax, not only will it not apply to big companies in the same way it applies to small companies, but all large companies won't even be treated the same. I've heard plenty of talk about hammering the oil companies; the Wal-Marts of the world seem to have been spared the crosshairs (at least on this issue). Interest group politics, indeed.

One figure that shouldn't be overlooked: Industry profit on gasoloine is an "excess" amount of 9 pennies per gallon. In light of the prices at the All-Star Express in Morgantown this morning, that amounts to a 3.9% take on the sale. 3.9% is excess? What does that make the 35% that the IRS imposes on the top income bracket?

The message that Congress wants to send to oil companies is to maximize the volume of their activities, not the profitability. I might be wrong, but didn't the Soviet Union try that with all of their companies for about 70 years?

1 comment:

KipEsquire said...

From a strictly accounting perspective, the easiest way to keep profits down is by keeping expenses high. So, for instance, oil companies could switch from flying their executives to and fro by first class rather than business class.

Is that the kind of "excess profit" remedy that Congress has in mind? If not, then they should shut up.