The pitch for putting some of the economic burden of $4-a-gallon gasoline on the oil industry served a dual purpose for Obama: It allowed him to talk up an economic issue, seen by many as a strength for Democrats and a weakness for Republicans. – As the Headline read out of Florida on Friday.
The “pitch” being referred to above is Democratic presidential candidate Barack Obama’s push on Friday for a windfall profits tax to fund $1,000 emergency rebate checks for consumers besieged by high energy costs.
It is high time that news cycle sound bites and empty rhetoric end and we, as American voters, start paying attention to the actions, official statements and fundamental beliefs of a contender for the next President of the United States. This most recent example showing Senator Obama’s lack of knowledge of fundamental economics should not only give Americans pause but is highly unsettling. Senator Obama’s lack of an intelligent energy policy is obscured by lofty sound bites, empty rhetoric and political expediency. As we enter the last 90 days of this campaign, let us begin pressing the candidates on issues, demand substantive answers and intelligently decide who is best suited to lead this nation over the next four years.
Senator Obama announced Friday that he wants to enact a windfall profits tax on “Big Oil” the favored target of the Democratic Party as of late. A short study of history will bring one back to an earlier Windfall Profit Tax (“WPT”) originally enacted under President Carter and lasting from 1980 to 1988. An obscure fact but one of significant importance is the definition of a windfall profit tax which is most simply defined as an excise tax on each barrel of oil produced. This differs greatly from an excess profits tax, which seems to me to be the implication that Senator Obama is suggesting as he demonizes the $11.6 billion of ExxonMobile profits as a disgrace. However this is unclear, therefore my first question to the Senator is, which is it Sir? The truth is, whichever way Senator Obama slices it, the Congressional Research Service postmortem published in 1990 concluded that the WPT of the 1980’s was a disaster to say the least. Initial projections estimated that the WPT would yield revenue of $225 billion a primary driving force in its legislative vitality. The reality was a gross revenue effect of $79 billion; however, these gross numbers once tax effected resulted in a paltry net revenue yield of $40 billion, a fraction of the original estimate, over the eight years the WPT was law. Add to that the fact that the Government was spending on average $15 million to collect the tax and the GAO reported that the WPT was “perhaps the largest and most complex tax ever levied on a U.S. industry.” Possibly the greatest misstep of the WPT was the impact on domestic oil production which fell to its lowest level in 20 years, while demand continued to rise and the result was an increased reliance on foreign oil supplies. Any effort to move the U.S. today in its current situation – importing approximately 12 million barrels a day from nations including Iran, Venezuela, Nigeria and Russia – to a system that will do nothing to impact oil prices and in fact raise our reliance on foreign oil is irresponsible and dangerous. It is quite inconceivable that a legitimate Presidential candidate is proposing such a policy considering the perilous energy situation the U.S. faces. Not to mention the enormous wealth transfer of nearly $700 billion to unfavorable and in some case rouge nations.
If the same old failed policies of the past being reenacted by Senator Obama’s plan are not enough then let us consider what a further tax burden on U.S. oil companies will do to the average American. It is popular fodder these days to classify “Big Oil” as the Democrats and Senator Obama do as the villains, the robber-barons’ of old. How is it conceivable that a for-profit enterprise would attempt and for that matter strive to increase profits or build revenue, it is unconscionable. Many in the news cycle led on July 31st with the headline . . . ExxonMobile reports record profits making $11.6 billion in the second quarter, with the connotation of how dare they make so much money all the while American’s struggle in a down economy. While, the truth is our economy is experiencing some weakness however this does not fall squarely on the back of U.S. oil companies because despite high gasoline prices and high oil prices record profits and record revenues cannot be view from inside a vacuum as many Democrats would have American’s do. The reality is record revenues yield record profits but it also yields record taxes paid, record capital expenditures and exploration and record distribution to shareholders. While ExxonMobile did make $11.6 billion and I guarantee many American’s can recite that number but can they recite the $10.5 billion in tax paid in the second quarter or the $12.5 billion spent on exploration and alternatives energy sources or the $10.1 billion in distributions back to shareholders of ExxonMobile stock in the form of dividends and share repurchases. I highly doubt that and even if they could most would say well these shareholders are management and “Wall Street” types, but they would be wrong there as well because 41% of all stock holders in U.S. oil companies are retirement plans, pension plans and IRA’s and a total of 64% of stock holders in U.S. oil companies are individual investors, everyday hard working Americans. Not “Wall Street” types. Compare those numbers to the 1.5% of stock that management owns.If Senator Obama would have his way he would raise the tax burden on U.S. oil companies driving down production and leaving the U.S. more reliant on foreign oil sources all the while hindering the performance of these enterprises that are majority owned by pensions, IRA’s and individual investors further limiting returns on that equity capital and stymieing retirement plans and nest eggs for everyday, hard working Americans that he claims he is trying to help. These plans are flawed and inconsistent. American voters deserve more from their Presidential candidates and should demand more.