BCT Editorial – 5/10/07

This page was last updated on May 12, 2007.

No defense; Editorial; Beaver County Times; May 10, 2007.

Below is a detailed critique of the subject editorial.

“The price of a gallon of gasoline is averaging around $3 and promises to go up as we move into summer.

“While Americans may grumble and complain, they seem to be resigned to paying this much for a gallon of gasoline. The chief beneficiaries of their passivity are oil companies and oil-producing countries.”

[RWC] I hate to break the news to the editorial author, but the U.S. is an oil-producing country. As of 2004, the U.S. was the world’s third largest oil producer. Our problem is we need to import oil (about 60%) to meet our demand.

“The reaction by Americans is interesting.

“They aren’t up in arms about paying $3 or more for a gallon of gasoline, even though they know it is boosting corporate bottom lines to mind-boggling levels or filling the treasuries of foreign countries.”

[RWC] When the editorial talks about “filling the treasuries of foreign countries,” it appears to forget increased oil company profits also result in increased taxes going into the federal and state treasuries. As a reminder, the federal income tax rate is 35% for profits over about $18 million and the PA corporate net income tax rate is 9.99%. On top of this you have to add the income taxes paid by oil company shareholders on capital gains and/or dividends.

Here’s some data from the 2005 tax year courtesy of The Tax Foundation. Combined, ConocoPhillips, ChevronTexaco, and ExxonMobil paid $44.3 billion solely for federal income taxes at an effective tax rate of 41%. That turns out to be about $250,000 per employee and about $4.60 per share. As noted above, this excludes the income taxes paid by oil company shareholders on capital gains and/or dividends. State corporate and personal income taxes must also be added.

“Yet if five or 10 years ago - or today, for that matter - state and federal officials had pushed to increase fuel taxes by 50 cents or a dollar a gallon to address the needs of our crumbling roads and bridges and to increase funding for research into finding alternative energy sources, Americans would have been in full tax revolt.”

[RWC] Note the editorial doesn’t explore the possible reasons for this behavior.

First, consumers realize the government does nothing to produce oil products like gasoline. Further, consumers realize government actually makes it harder for oil companies to deliver product via regulations and denying access to domestic reserves.

Second, taxpayers likely realize increased taxes would not go “to address the needs of our crumbling roads and bridges.” Indeed, past editorials conceded taxes collected for roads was diverted to prop up government-run transit systems like the BCTA, PAAC, et cetera.

If the Times believes the government should fund alternative energy research in addition to that conducted by the oil companies, why didn’t it suggest the government use the windfall taxes it’s collecting as a result of higher oil company profits? You only get one guess.

“Yet Americans meekly and willingly are handing over billions of dollars to private companies and foreign countries that do not have their nation’s best interests at heart.”

[RWC] As long as they operate within the law, businesses are supposed to have their own “best interests at heart,” not that of government. That said, let’s look at what happens to oil company profits.

Some of the profits go to research – both oil and alternative energy and exploration. For example, Texaco conducted quite a bit of research into the environmentally friendly use of low quality coal. As a result, power plants around the world use the results of that research. For you manmade global warming believers out there, this process also provides the potential to sequester the produced CO₂ so it’s not emitted into the atmosphere. Damn those evil oil companies! <g>

As noted above, a huge chunk of profits go into federal and state treasuries directly via income taxes.

Finally, the remaining profits go to the shareholders. In addition to people like you and me, many (most?) significant pension funds own oil industry stock. Because of double taxation, some of this goes to the government via personal income taxes.

What more does the Times want from oil companies? Perhaps the Times agrees with Sen. Hillary Clinton (D-NY) when she told the Democrat National Committee at its winter 2007 meeting, “I want to take those profits.” Apparently the billions in taxes paid by oil companies and individuals aren’t enough for some people. People like Mrs. Clinton want it all.

“Billions for tribute, but not one cent for defense.

“Our energy shortsightedness is going to haunt our nation for decades.”

[RWC] Apparently the Times didn’t recognize it’s own “energy shortsightedness” in it’s own editorials.

The same paper that made the above populist comments also published at least five editorials since March 2005 lobbying against exploration for and production of domestic oil and natural gas supplies.

Don’t get me wrong. We can’t drill our way to energy independence. The idea, however, that domestic exploration and production is not part of a responsible energy policy is nuts.