Windfall Tax On Oil Profits Needed After “Forecast-Busting First-Quarter Earnings “

The news should not startle anyone who feels like they need a bank loan to fill the gas tank on their car.  Gasoline prices have rocketed, and predictions are that things will get worse.  Now comes word that forecast-busting first-quarter earnings were reported by oil companies which only adds salt to the wound.

BP PLC and Royal Dutch Shell PLC, Europe’s two biggest oil producers, posted forecast-busting first-quarter earnings on Tuesday thanks to record crude oil prices that are expected to bolster profits across the industry.

BP posted a 63 percent surge in first-quarter net profit to $7.6 billion (4.9 billion euros), while Shell reported a 25 percent rise, to a record $9.08 billion (5.81 billion euros).

Revenue at BP jumped 44 percent to $89.2 billion (57.1 billion euros), while sales at Shell soared 55 percent to $114 billion (72.95 billion euros).

Last week ConocoPhillips reported a 16 percent rise in net income to $4.14 billion. Like BP and Shell, the third biggest U.S. producer far outpaced industry expectations. More big profits are expected from the biggest two U.S. companies, Exxon Mobil Corp. and Chevron Corp., when they report first-quarter earnings later this week.

The combined profits of $17 billion, at a time when Americans are falling behind on mortgage payments, and struggling to find the money to fill the tank just to get to work, should alert the White House about the need for legislative action.

Clearly there must be a windfall tax on oil profits, a remedy that has long been proposed, and one I strongly support.  Some of the smarter politicians understand the need for such a response.

“With the price of oil and gas skyrocketing, and the big oil companies continuing to enjoy record-breaking profits the time has come, among other things, to impose a windfall profits tax on the oil companies so that consumers don’t get gouged at the pump,” Senator Sanders said in a news release. “Congress and the president must say ‘no’ to the $213 million in campaign contributions that the oil industry has given to them since 1990 and ‘yes’ to consumers by taking this important step.”

The Bush White House has been too cozy with oil interests while the economic conditions for average and low income Americans have deteriorated.  Things are not going to get better as predictions of $200 a barrel oil is now being talked about.

Opec’s president on Monday warned oil prices could hit $200 a barrel and there would be little the cartel could do to help.

The comments made by Chakib Khelil, Algeria’s energy minister, came as oil prices hit a historic peak close to $120 a barrel, putting further pressure on global economies.

The prices for goods and services are climbing in the US, and the high price that truckers need to pay for fuel is the chief reason why.

Dave Gares, an independent truck driver since 1974 who hauls mostly soft drinks these days, never dreamed he’d be paying more than $4 per gallon for diesel.

It takes 220 gallons to fill up his tractor-trailer rig, which gets a little over six miles per gallon on the road. It costs Gares up to $1,400 to fill up, with the added cost of fuel additives to boost his truck’s mileage. He said he has to absorb the increases to stay competitive.

Clearly there needs to be a response to the obscene oil company profits that sap the incomes of families in America.

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4 thoughts on “Windfall Tax On Oil Profits Needed After “Forecast-Busting First-Quarter Earnings “

  1. Brian

    Who ultimately will pay for the tax? You and I will. No offense but your logic is a little off. Try taking a Econ 101 class and once you understand Supply and Demand curves (you’ll see a lot of them in this class) then see if the tax still makes sense to you. Also if you have a 401(k) or other type of investment tool chances are you are benefiting from the surge in demand of this commodity, I know my large cap fund is bolstered by the energy and oil stocks. You see ‘Big Oil’ is not some old fat cats smoking stogies in a back room saying let’s raise the price of gas on the consumers, it’s people like you and me that are stockholders. We own ‘Big Oil’. Not to mention if you do tax the on ‘excess profits’, by the way what is an excess profit, maybe the companies decide to hold back production and really get prices to increase. Also do you have a problem with the ethanol subsidies here in Wisconsin? We are paying them to produce an energy intensive product that doesn’t produce any real tangible result. Sorry for the rant, but a former econ major it would behoove you to check out taking a basic class. They are presented with no political bias but they do show how we (consumers) respond to market conditions.

  2. Well, we disagree, though I thank you for writing.

    My knowledge of the issues points me in the direction that higher taxes need not stunt investments and curb future production by the oil companies. A taxing system can be created that would not impact investments but might in fact stimulate them. If done smartly it would allow the oil industry, and yes they are fat cats, to recoup the investments and still make a good return. Those returns would be smaller for sure than the obscene profits that are now seen. Still they would make healthy profits. After that we look at incremental revenue and tax that.

    As for investments, I follow a more ethical and principled approach, one that does not make as large gains for myself as I could. I hate to think that my gains were at the expense of others. I may not make as much, but I feel good about the investments I hold.

  3. My problem w/ the “economics” argument is the protection of those who obviously must have enough discretionary income to (1) afford higher gas prices and (2) invest in securities. Meanwhile, a large portion of Americans can barely make ends meet as gas prices increase well above a normal cost-of-living raise which most of us receive annually due to the stagnant economy. So forgive those of us who are jaded by tight budgets on the heels of news reports of “record profits”. The substantial shift in wealth to the select few during the Bush years is annoying. He even said his contigency is the “haves and the have mores”…I also have a degree in business and have studied economics. Where is the “diminishing return” on the “record profits”?

  4. Patrick (another)

    The idea of a windfall profits tax is destructive pandering for votes. It is a distraction from years of stupid energy policies and stupid environmental policies. Look, current oil prices are the result of supply and demand, not of oil companies increasing the percent of profit they make per barrel at the pump. Next time you fill up, consider that much more than a dollar already goes to the government. Why could we ever hope that taxing the oil companies would ever result in lowering the price for consumers hurting now or in the future? “diminishing returms’? how does the return get larger if more is taken in taxes? If I remember, we were told ten years ago that to get an new oil from ANWAR or elsewhere would take ten years, so go figure.

    Before we insitute “windfall” taxes, I’d like to see a list of other corporations whose profits represent a similar percentage revenue. Should we raid them too?

    Rather than windfall taxes, we should recognize that drilling technologies are infinitely more green today and commence drilling in ANWAR and the pacific costal regions as well as off the Florida coast(where the chinese are already beginning operations). We should eliminate the asinine ethanol mandates which are destructive and counter-productive. We should eliminate “botique” blends of gas designed to create monopolies for oil companies in local markets (this is the real scam).

    Look, the people who have invested in oil companies do so at their own risk. Since we are not going to bail them out if they lose money, it isn’t right to strip them of profits now. And anyone who feels that government would make good use of the windfall taxes should consider how well they managed the last major windfall from “big” tobacco.

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