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Too Much Is Never Enough

Before I get started on another tax piece, I need to make a correction from my last one. In that one, I talked about income taxes as if they were a simple percentage. They're not -- they are "marginal." Apparently, the rate you pay goes up as your income goes up -- but only on the portions above the prior levels. The highest rates are only on the portion of your income that exceeds the "floor" for that bracket. Sorry about the mixup and thanks to those who pointed it out.

Anyway, the big thing going around now is ExxonMobil and their record profits yet again. This is fueling folks' demands that ExxonMobil (and, probably, the other oil companies) fork over extra money to the government under a "windfall profits tax."

Last year, ExxonMobil made a cool $40 billion bucks. That's a hefty hunk of change.

But in the process, they paid $30 billion in taxes.

Someone wiser than me ran the numbers, and ExxonMobil paid more in taxes than the bottom half of ALL Americans who filed tax returns last year. Over $2 billion more, to be precise.

That beggars my imagination, and I think I have a pretty good imagination.

Dr. Perry also calculated ExxonMobil's tax rate, and it's over 41%. That means that they're already giving the government 41 cents out of every dollar they make.

So Exxon is huge. No argument there. But how efficient are they?

Well, their profit margin is around 9.8%. That means out of every dollar they spend, they make just under $1.10, as I understand it. A decent rate of return (certainly better than you can make at the bank). but it's vastly outstripped by other businesses. Banks themselves, for example.

Or, to go after one of the Democrats' sacred cows, lawyers.

I know this is not a very endearing position to take, but I can't help but see this move as an attempt to punish ExxonMobil for being big and successful. Apparently a taxation level over 40% and over $30 billion dollars isn't enough for some people. They want MORE and MORE and MORE. Hence all the talk about a "windfall profits tax" on top of everything else.

So, how well might that work out? If we look at how well it worked the last time, I'd have to say the answer would be "not very well."

And I also find myself wondering just what sort of mechanism will be put in place to keep Big Oil from doing just what nearly every other business does when it can when its costs go up -- passing them along to consumers. "The government says they're going to take five cents from us for every gallon of gas? Fine. We'll just jack up the price of gas five cents to cover it."

And if the government says they can't do that, then Big Oil can just play "find the umbrella."

Maybe I'm a cynic, but I get suspicious -- nay, downright paranoid -- whenever the solution to a problem boils down to "have the government take more money from people making money."

Especially those people who make their money by providing actual goods, goods essential to our nation's ongoing survival.

I find I have more faith in Big Oil than I do the government. If I had a billion dollars lying around, I'd have far more faith that it would be used profitably -- and give me back a decent return -- and do more good -- if I invested it in ExxonMobil than entrusted it to Harry Reid and Nancy Pelosi.

Hell, I already do that. I have far, far more faith in my 401K plan (managed by Vanguard) than I do in Social Security. And, I bet, so do a lot of others.

But back to my point: ExxonMobil already pays huge taxes and a very, very high tax rate. The only explanation I can see for people getting so furious at them is because they still have metric assloads of money left over after paying all that, and THAT CAN NOT BE TOLERATED.

Just like no good deed can go unpunished, neither can any success.

I guess I just lack the envy gene that so many people have. When I see others doing fabulously well, I say "good for them" rather than "how can I bring them down to my level?"

And I think I'm glad about that.


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Comments (22)

For those who don't click t... (Below threshold)

For those who don't click through to the Mark Perry piece he was comparing Exxon/Mobile's global taxes to the bottom 50% of U.S. taxpayers.

The $30 billion in taxes Jay Tea references wasn't all paid to Uncle Sam.

Goofy question:I t... (Below threshold)

Goofy question:

I thought that Obama said he would tax above a profit amount, say at 65 billion.
SO why would anyone sell ANY more product that would put them ABOVE that amount?

This of course would reduce the amount of product available on the market. Driving up prices. There by making more per barrel then Exxon has to REDUCE AGAIN the amount that they sell.


Wait -- doesn't Exxon/Mobil... (Below threshold)

Wait -- doesn't Exxon/Mobil have common share stockholders, to whom it pays dividends?

So isn't this "windfall profits" tax going to reduce those dividend payments, effectively making it effectively an additional extra tax on average everyday usa Citizens?

This is a serious question, not a socrastic one; I honestly don't know the second thing about stock investment and so on and how this is all supposed to work.

Would you want to take a gu... (Below threshold)

Would you want to take a guess on which company is the #1 invesment for Obama's hometown (Chicago) Teacher's Pension Fund, would be subject to his winfall tax and thus have less income for retirees?:

Senator Obama's Windfall Profit Tax Will Hurt the Chicago Teacher's Pension Fund

I don't know where Dr Perry... (Below threshold)
Boyd Author Profile Page:

I don't know where Dr Perry got his numbers, but if you look here (h/t Beldar), you can calculate the overall percentage of their gross revenue that Exxon paid in taxes for various time periods.

My own calculations (which contrary to Dr Perry's post, you can repeat for yourself and get the same numbers I got) indicate that Exxon paid anywhere from 23% to 27% of their revenue in taxes. For those who don't want to click through, the time periods listed there are 2nd Quarter and 1st Half of both 2007 and 2008.

Still significant, but not 41%.

Boyd:you can calc... (Below threshold)
_Mike_:

Boyd:
you can calculate the overall percentage of their gross revenue [em added]

Taxes aren't levied against revenue they're levied against income. There's a world of difference.

It's also worth mentioning ... (Below threshold)
_Mike_:

It's also worth mentioning that the CY effective tax rate appears to be running about 49%.

www.businessweek.com/bwdaily/dnflash/content/may2008/db2008051_596535.htm

Exxon also noted the increase for 1H08 in the earnings statement linked by Boyd.

The effective income tax rate increased to 49% versus 44%.

This is a winning argument ... (Below threshold)
JFO:

This is a winning argument for about 75% of the country. We don't like it that big oil might have to pay more taxes. Keep it up, you'll go far with that one.

A windfall profits tax only... (Below threshold)

A windfall profits tax only works politically (to the extent it works at all) if the public is experiencing 'pain' that the demagogues can blame on the targeted big and successful company/industry.

Someone has to be blamed for high gas prices, and who better than the oil companies whose profits go up lockstep with the pain caused by high gas prices? (note: certainly not the Democrats who have contributed to the problem).

This also explains why other industries, even those with higher profit margins or those who collectively make more money, aren't in the crosshairs of an excess profits tax, as, for example, the public doesn't think they suffer from Apple making a profit margin twice that of Exxon, nor do they think they suffer from whatever it is that trial lawyers do to pull in the big bucks.

And this is why it would be better to give the public someone else to blame (hint: the Democrats and the environmentalists, and not to try to fight with merely logical defenses; even though Jay and Beldar are right, the public wants blood, and if we don't give it to them, the Democrats sure will step into the vacuum. There will be blood (sorry, couldn't resist), the only question is whose blood shall it be?

JFO, you tell 'em, comrade!... (Below threshold)
brainy435:

JFO, you tell 'em, comrade! To hell with profit and success. Well for others, anyway.

Stalin

JFO, since nobody on the op... (Below threshold)

JFO, since nobody on the opposing side seems willing to respond, could you at least please take a shot at my questions?

No trap. I just want to know how valid a point the 'lower dividends = effective tax on average Citizen stockholders' is, and why so. I'm only trying to become better informed about this.

Let's say it another way, J... (Below threshold)

Let's say it another way, Jay: If I owned ExxonMobile outright I would move it to Europe -- or almost any place outside the U.S. -- to avoid those regressive corporate taxes.

Philip Morris is closing a 2,000+ employee plant in Concord, NC (average union wages $65,000), and moving it to Germany where average union pay will be $65,000. The company says it will improve earnings by about one-third because the tax in Europe is primarily on consumption instead of corporate earnings.

So the price of a pack of cigarettes will remain the same; the same number of people will be smoking; Germany will be collecting the taxes from employee earnings and spending; consumers around the world will be paying the same amount of taxes; but two things will have changed: the NC and federal governments will be poorer and so will 2,000+ families in the piedmont of North Carolina.

Way to go Donks! Pretty soon we'll look more like a third-world basket case than the envy of the world.

FrankAnd just how ... (Below threshold)
JFO:

Frank

And just how is it that the "Donks" are responsible in view of the fact that an idiot Republican has been in the WH for 8 years and a corrupt Republican Congress in power for 12 or so years out of the past 14?

Are you seriously going to argue that it is because of the Dems control of Congress for the past 18 months? If so, give us the specifics please, i.e what laws have been enacted by the "Donks" to make what you claim has happened. Were those laws enacted over a Bush veto?

Or is this just another wet dream of a typical "Wingnut?"

Go ahead and Windfall me ... (Below threshold)
Arthur:

Go ahead and Windfall me (assuming I'm Exxon). I'll figure out how much oil to extract to get close to the limit and then stop pumping. No point in extracting my limited amount of oil just to hand over ALL the profits to the govt. And with less oil pumped that'll lower the supply and drive the price up so I'll be able to pump even LESS oil to meet my tax limit.

When the tax is repealed (like the 1970s tax was repealed in 1988) I'll pump like a son-of-a-gun again.

This is a winning argume... (Below threshold)
James Cloninger:

This is a winning argument for about 75% of the country. We don't like it that big oil might have to pay more taxes. Keep it up, you'll go far with that one.

How about this argument, as mentioned above:

The more taxes we are forced to pay, the more of those costs are going to be passed to you, the customer.

You like that one better?

And just how is it that ... (Below threshold)
James Cloninger:

And just how is it that the "Donks" are responsible in view of the fact that an idiot Republican has been in the WH for 8 years and a corrupt Republican Congress in power for 12 or so years out of the past 14?

Because it's the Congress that writes and passes tax legislation (see the Constitution), and it is currently the corrupt Democratic Congress in power who is making a big stink about "windfall taxes" at the moment.

And who hasn't bothered to look up history, as mentioned in the main article. THIS HAS BEEN TRIED BEFORE (http://www.taxanalysts.com/thp/readings.nsf/ArtWeb/B9E4D38FED6CBF7F8525745900099A55?OpenDocument) and it didn't do a damn thing for taxing profits made overseas (where most of the oil is coming from, by the way.

Go ahead and Windfall me... (Below threshold)
James Cloninger:

Go ahead and Windfall me (assuming I'm Exxon). I'll figure out how much oil to extract to get close to the limit and then stop pumping. No point in extracting my limited amount of oil just to hand over ALL the profits to the govt. And with less oil pumped that'll lower the supply and drive the price up so I'll be able to pump even LESS oil to meet my tax limit.

Which is exactly what happened with the first tax bill. Furthermore, less domestic pumping means MORE DEPENDENCE on foreign-sourced oil. Which sort of defeats the purpose of the tax bill, doesn't it?

Good going guys.

I suspect that Exxon Mobile... (Below threshold)
Scrapiron:

I suspect that Exxon Mobile is looking for an overseas location for the part of the company still subject to U.S. taxes. If not, they aren't very smart. The Clinton's, Obama's, Kennedy's, Heinz's and every 'rich' person have their funds located out of this country and not subject to the usual taxes paid by us dummies. The hype of a politician on taxes is just that, hype. The only people who will suffer a 'real' tax hike under Hussein will be the working people. Democrats will deny that but then they denied they got a tax cut under the Bush tax cuts, which was a lie every person in the country knew was a lie. Democrats just don't mind lying when the urge hits them. They in a class with the media, all lies, all of the time.

I read today that the 'rich' have stopped buying luxary items, not because they can't afford them, but to hold on to and move the money overseas out of reach of the new taxes that will surely come under a democrat administration. Sometimes they aren't too smart but they aren't completely stupid either.

JFO, I wouldn't attempt to ... (Below threshold)
Scrapiron:

JFO, I wouldn't attempt to tell you anything because you never listen or learn but you could go back and look at the stock market, housing market, financial market and unemployment rate from 2001 through 2006, also look at fuel prices. Then start in Jan 2007 when the donks took control of congress and look at the crashes in the stock market, the housing market, the financial market and the rising unemployment rate. Fuel prices went up 66 cents per gallon in six years with Bush and a republican congress. They increased almost, or over $2 per gallon in some states in 18 months under a Peeeloshi/Reid controlled congress who threatened the oil companies and of all the stupid things, threatened to sue OPEC. It takes a real stupid person to 'not' figure out what the donks did in a short time. The sad thing is they did it for personal political power. They could care less about you or me or anyone else. It's personal power that drives a democrat. Support them, vote for them and then suffer because of them. I will survive. I won't get cold or hungry this winter either (got the wood and coal, don't care that I will polute more than a power plant, ready and the garden products in the cans or in the process of getting it there), but Millions will.

Only JFO and his crazy comr... (Below threshold)
WildWillie:

Only JFO and his crazy comrades can say in one breath the economy sucks and in another companies are making too much money. As I have said before, they have no core beliefs. ww

Acksiom:... (Below threshold)
_Mike_:

Acksiom:

No trap. I just want to know how valid a point the 'lower dividends = effective tax on average Citizen stockholders' is, and why so. I'm only trying to become better informed about this.

JFO's not doing to answer a legitimate question (in part because it's over his head).

You are correct. Taxes are simply another expense. An increase in expenses typically results in some combination of the following: (1) a increase in the price of the end product, (2) a reduction in other expenses (e.g. personnel - i.e. layoffs, reduction in capital expenditures - i.e. stop buying other business's products), (3) reduction in earnings (e.g. lower dividends paid to shareholders e.g. your 401k).

Taxes at best act as friction against economic growth... at worst, a retardant.

@Frank, JFO: I expect in th... (Below threshold)
James:

@Frank, JFO: I expect in the case you're talking about the move to Europe was prompted by the fact that their consumption tax means that a company that produces things in the US will pay corporate taxes, plus VAT when they sell in Europe, while a company that produces in Europe will pay little to no corporate tax, and while they too pay VAT in Europe, they can export to the US and pay no consumption tax. It's not a zero-sum game, is the problem.

Phyllis Schlafly (?) writes about this a lot, but has the wrong end of the stick. She wants tariffs to make it "fair", so that the Europeans pay their consumption tax when they sell goods here. The "correct" answer is to adopt the European model: slash or eliminate our corporate (production) tax, and implement a federal consumption tax of our own.




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