The journey from there to here
Published on February 2, 2006 By Gideon MacLeish In Politics

As the news reports roll in about Exxon Mobil's 2005 earnings, more and more individuals and advocacy groups are calling for a "windfall profits" tax that would curtail excess profits such as those made by Exxon. It is a very bad idea, and it would hurt most those the argument claims to want to help: the American working class.

The price at the pump is only the first place that would be affected. As you know, taxes on a corporation are passed onto the consumer in the form of higher cost, a cost that we can ill afford to pay in such a needed commodity as petroleum that is essential to shipping, manufacturing, transportation, heating, and many other segments of the economy.

But going further, such a tax would impact the price of the oil companies' stocks. Stocks are bought and sold on the idea of their being able to bring a return on shareholder's investments, and a stock in any company that's governed by price controls would not realize a continuing rise in prices, as investors would realize there's only so much return they could reap from such investments. Other corporations in similar types of industries may feel a fallout effect as the prices of their stocks drop in anticipation of future, almost inevitable, regulation. As the stock prices drop and the economy flattens out, businesses will stop expanding. They'll stop hiring, meaning a net loss of jobs in an economy that some insist is already weak.

These international companies will still feel a need to guarantee a return on their shareholder's investment; that's their JOB. As a result, they will sell their oil on foreign markets where they aren't governed by such regulation to earn bigger profits, and the supply to the United States will be reduced with fewer suppliers. Because the free market operates on the principle of supply and demand, a lessened supply with a stable demand means only one thing: prices rise.

I didn't enjoy paying nearly $3.00 a gallon at the punp in the wake of Hurricane Katrina any more than the next guy. But I realize that if we proceed with proposed legislation, we will not only see the increased prices, but we will NOT see the subsequent DROP in prices for a long, long time.

And that is an end result that hurts EVERYONE, even those far outside our economy. For you see, many of our dollars are allocated to foreign aid; dollars that future administrations would almost certainly be forced to reassign to domestic spending if placed in such an economic crisis.


Comments (Page 2)
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on Feb 04, 2006

Please read my post # 8

Why?  If I want to read ignorance and stupidity, I will read Mickey Moron.

on Feb 09, 2006
This is an older article, but I don't get a chance to participate much in the discussions, so I'm posting again.

The problem with your argument, Gene, is that you only see the money that is supposedly "taken out of consumer's hands" up front. Yeah, we all want it to be 1997 and 98 cent a gallon gas again (it was 98 cents where I was then). And I know, and so does everybody, that the bosses are going to take more than their fair share...but...

...BUT...

Exxon and other companies aren't stupid. Greed doesn't equal stupidity. Even a lot of the peak oil believers are saying that prices are artificially high right now so that these companies can find ways to be viable in the age beyond fossil fuels. Oil is becoming more expensive to pump -- that's true. And if the companies tack a little more onto the deal in order to find new ways to fulfill their niches (energy production), then we all benefit in the long term.

Exxon, et al. is going to need money to research and develop new forms of energy. Profits will also allow us all to stretch every barrel of oil as far as we can. Yes, there is greed, but there is also the need for these companies to remain profitable and viable in the future and that drives them as much (and more) than just profit.

I'm not against the government in the boardroom, but only under the terms that they are there to make sure that this money gets reinvested in ways that might help not only stockholders, but all consumers. That doesn't necessarily mean a cut of the profits off the top. Stockholders don't recieve their biggest profits off dividends, but off of company growth. In this same manner, a profit tax is just a dividend payment of sorts, whereas a long-term investment of profits means exponential savings for every energy user.

Cheers.
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