Only politicians would profit from oil levy
By James L. Martin
Special to Knight Ridder/Tribune
Virginia’s new governor, Tim Kaine, a “new Democrat” with his party’s old penchant for taxing and spending, spent much of his response to the president’s State of the Union address urging Big Oil to “share in our sacrifice” by forfeiting “excess profits.”
Yet Big Oil, by any rational standard of measurement, doesn’t have any “excess profits.” Its rate of return — less than 8 percent — lies solidly in the median spectrum for all industries and is about half that of such leaders as the semiconductor sector. In fact, McDonald’s made 24.2 percent last year.
Pleas by politicians such as Kaine always cause me to cringe a bit because they never mention the government’s own version of excess profits: excessive taxes.
Since Ronald Reagan’s first big tax cut in the early 1980s, the federal income tax rate for individuals has been creeping back up and now tops out at 39 percent. And increasingly, fewer citizens actually pay income taxes.
According to the national Tax Foundation, 44 percent of Americans in 2004 — a whopping 58 million households — had no income tax liability or earned so little that they didn’t have to file returns.
That number doesn’t include millions of illegal immigrants who get paid cash and don’t report it as income. So it’s a good bet that more than half of all Americans literally are exempt from federal income taxes, with the tab for much of their existence picked up by middle-income workers like you and me.
Big Oil — which many in Congress insist should lower gas prices, spend more on exploration and take a major role in rebuilding New Orleans — already is taxed copiously. Take a calculator and add up its corporate income taxes, payroll, property, franchise, service and severance taxes, and you’ll see for yourself.
All told in 2005, the three largest oil and natural gas companies will have paid a staggering $158 billion in global taxes. That figure surpasses the national domestic product of some 50 nations and roughly equals the annual economic production of oil-rich Iran.
Of course, any mainstream economist will tell you that much of the tax burden of any corporation or industrial sector ends up being transferred onto the backs of average working Americans.
Motorists — whether they drive a Maserati or a Malibu — now hand 45.9 cents per gallon to the government every time they fill up at the gasoline pump. Add an additional 18.9 cents per gallon in state taxes if they buy gas in Kaine’s Virginia.
The average effective tax rate on oil and gas companies is estimated at 38.3 percent compared to a rate for all industries of 32.3 percent.
The hard-hearted oil companies pass every penny of that they can back to consumers at the pump because that, after all, is the way that a free market works. Free markets provide plenty of jobs — but no free lunches — for those who want to work
Ironically, politicians such as Kaine or such windfall tax advocates in Congress don’t know enough about basic economics to understand that their proposals punish not corporations but people.
Hundreds of thousands of American workers who work in the oil industry might be forced to accept pay cuts, layoffs or even job losses if Congress in its less-than-infinite wisdom manages to make oil companies uncompetitive in the dog-eat-dog global marketplace.
Tens of millions of Americans approaching retirement age might find that their IRAs, mutual funds or pensions provide them with less if the oil industry takes another undeserved tax hit from the grandstanders on Capitol Hill.
And, of course, consumers will pay yet higher prices at filling station pumps or, worse, face the gasoline shortages that produced long lines during the Carter administration in the late 1970s.
Unfortunately for Americans, the only windfall profits derived from windfall profits taxes will be grabbed by pandering politicians courting gullible voters in next fall’s elections.
Yet there are some hopeful signs. Voters have heard such blathering so many times in recent years that fewer are likely to fall for the scam this time. Getting rid of such demagogues would indeed be a windfall for the American body politic.
