I'm Joeverkill... Right-Wing Rant, yada yada.
On my previous post regarding oil prices, Minotauromachy voiced the opinion that current gas prices are not entirely the result of a free market economy. This point is very valid: gas production is up more than 5% from last year, while consumption is down 4% [stats can be found here ].
Minotauromachy asked if I had a plan to prevent price-gouging and provide some short-term relief to consumers while a long-term solution is derived (thanks for asking, Minotauro!).
So, here's my plan: levy a progressive profit margins tax on oil companies and refineries. The higher your profit margins, the higher your tax rate. The tax should kick in at 0% profit margin and go exponentially upward from there, pushing up to 90% or so if profit margins go past, say, 40% (these are all ballpark figures, of course).
There are problems with hard, mandated price controls. Companies can get seriously burned if costs skyrocket, which is definitely a possibility in the world of oil production right now. Additionally, consumers can suffer from massive shortages if price controls are set too far below what the market would dictate. But my plan is not an outright, mandated price control. Instead it is a more flexible system, one that prevents price gouging and curtails corporate greed, while safeguarding against the dangers of hard price controls.
I'm Joeverkill, and this has been a Right-Wing Rant. Sort of.
Thursday, May 1, 2008
Right-Wing Rant: Gas Prices Part 2
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4 responses:
Joe, as you yourself pointed out, the profit margins in percentage terms in this business are low. So the tax you propose would have a very low impact.
When did I say that?
The oil companies' profit margins are quite high. From the 2007 fiscal year, courtesy of Capital IQ:
Exxon Mobil: 11.23% margin, $171 Billion gross profit.
Chevron: 8.98% margin, 86.27 Billion gross profit.
BP: 7.33% margin, 83.6 Billion Gross profit.
If the U.S. government put a 25% tax on margins between 5% and 10% (and I think that's a reasonable number, because I happen to be in the 25% tax bracket), it would generate $85 Billion in revenue from these three companies alone.
In any case, generating revenue from these taxes is a secondary gain. The main purpose the tax would serve would be to discourage price gouging. The McCain/Clinton plan would cost the federal government approximately $10 Billion, and mosts economists agree that it would only save the average consumer a couple dozen dollars. My plan would generate massive amounts of revenue for the federal government, while protecting consumers from being gouged at the pump.
thanks for taking the time to further clarify your point joe, but the point i was trying to make referred to what you said in your earlier post and what i hear on news shows that defend the oil companies (not comparing you two by the way or insinuating anything, just mentioning the source of my confusion)- that compared to other businesses, the oil companies make smaller profits in percentage terms.
I want to mention btw that i am no economist and i am asking you this more in the spirit of curiosity and confusion
Of course. And yeah, technically you're correct. Exxon Mobil's profit margins aren't as high as Coca-Cola's or Kraft's.
But oil companies' margins have been getting higher. There's obviously a gas price crisis in the making, and there's a lot of concern over its potential impact on the U.S. economy.
I'm no economist either, but I know enough to see that the McCain/Clinton gas tax holiday is a bad plan, and hard mandated price controls are a dangerous thing to mess around with.
Again, I'm no economist, but I think that a progressive profit margins tax could be a safer and fairer option than price controls, and would probably do a more sound job protecting consumers as well. There are some problems with it -- I'm not sure what the effects would be on oil company stock -- but the plan is to tax profit, not revenue. Even after a large margins tax, big oil's profits will still be astronomically high.
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