Congressmen screamed bloody murder when Exxon reported their income rose 14% in the 4th quarter of 2007. As a result of this “crime,” Congress even brought in the top executives of the five largest U.S. oil companies to reprimand and lecture them.
“Where is the corporate conscience? Is there anybody here that has any concerns about what you’re doing to this country with the prices that you’re charging and the profits that you’re taking?” Sen. Dick Durbin
So what are the profits? Exxon earned $11.6 billion, which is a record for U.S. companies. In 2004, they had profits that freaked out the masses as well. Their gross margin that quarter was 9.8 cents per dollar of revenue. But financial institutions such as commercial banks, are routinely more profitable than Exxon. 9.8 cents is laughable in comparison to Citigroup’s 15.7 cents per dollar in 2004. The makers of Marlboro made 22 cents for every dollar. Merck made 25 cents.
If your company grosses 6 billion, and your expenses are only 1 billion, you just made 5 billion. If you gross 150 billion, and your expenses are 140 billion, you made 10 billion. Ask yourself which company is more “evil”: the one whose income was twice as much, or the one who’s ROI was 600%? Profit margin is the more relevant statistic.
Looking at Moneycentral.msn.com, Exxon’s gross margin is 21.6%. Check out the gross margin of these other companies that haven’t been scolded by congress:
- MoSys: 81.1%
- Microsoft: 79.3%
- Google: 59.8%
- Yahoo: 59.5%
- Apple: 34.4%
- Safeway: 28.6%
- Walmart: 23.5%
- Amazon: 22.5%
- Exxon: 21.6%
- Disney: 20.3%
Walmart is also attacked with its gross margin of 23.5%. Walmart and Exxon aren’t being attacked because of their profits. That’s just the excuse. If profits were the real crime, Bill Gates and Larry Page might as well live in Washington to make their daily scoldings more convenient. Why don’t we stop bothering Exxon and start demanding Microsoft, Google, and Yahoo decrease their obscene profits? Google didn’t exist 10 years ago, and we were doing just fine.
* I don’t really believe we should go after Google’s profits. They earned it fair and square, just like the oil companies. There is no difference. Just be aware of the hypocrisy.
What goes into the price of a gallon of gas? There’s a nice explanation here. At the pump, only about 4% of the price represents oil company profits. So if you wiped out all oil company profits, the price of a $4 gallon of gas would become $3.84. That doesn’t explain the dollars of increase in recent years. Did you know that while Exxon gets 16 cents from that gallon, 60 cents goes to taxes? “A thief is more moral than a congressman; when a thief steals your money, he doesn’t demand you thank him.” Walter Williams
You can’t tax a corporation
“You can’t tax a corporation. It’s a lie. There’s no such taxpayer. Tax the corporation and you tax the people that work there, or buy its products, or own its stock. If you can’t have dinner with it, you can’t tax it.” - Kelly J. Maguire
Senators like Dick Durbin and Charles Schumer would solve this “problem” of high oil company profits by instituting a windfall profits tax. Maxine Waters actually admitted what Washington really wants to do. When Exxon makes a boatload of money, that boatload will be taxed more than their usual profit. But what does a company do when its expenses increase? It increases the price.
A windfall profits tax actually taxes gas users. This is just basic economics. If you add a tax to a corporation for high profits, their bottom line will decrease, which decreases their stock price and dividends. This is completely unacceptable to shareholders, so to prevent that, the corporation must increase its prices or decrease its expenses by the exact amount of the tax. BASIC ECONOMICS. So either prices will go up or some people will get fired.
This article at lossofsanity.com puts it best:
An increase in corporate taxes increases the cost of producing goods and services and leads to a higher price for the consumer.
Politicians know the secret and fear that the public will learn it too one day. Thus politicians continually demonize business with words like greedy, anti-consumer, socially irresponsible in order to keep people’s anger focused on business instead of the true practitioners of greed… politicians.
BIG Farm
I mentioned earlier that people were hopping mad about Exxon’s 14% increase in profits. What if I told you there was another company whose profits rose by 86%? Would you be 6 times as mad? Cargill Inc.’s profits went from $553 million to $1.03 billion. How did an agriculture business increase profits by that much?
They didn’t. Congress passed the Energy Policy Act in 2005 which required use of ethanol in U.S. gasoline. As a result the price of corn nearly doubled, which increased their profits. The increased profits gave incentive to stop growing other crops to make room for corn, which lowered the supply of those other crops and therefore raised the prices. The price increase in crops like corn has caused “Tortilla riots” in Mexico, and violent protests have occurred in 33 countries. Artificially messing with energy has literally made people hungrier. Perhaps everyone should stop worrying about Big Oil, and start worrying about Big Farm and Big Government.
