It’s time to scrap last year’s carefully crafted campaign image of Robert Casey as a moderate. Barely three months after taking office, the junior U.S. senator from Pennsylvania is launching class warfare in the virulent anti-capitalist tradition. In reaction to ExxonMobil’s recent announcement of a 10 percent increase in first-quarter earnings, Casey wants to raise taxes on Big Oil to fund a new federal program for the poor. Specifically, (and I quote from an April 27 statement on the senator’s official website) Casey seeks “a 50 percent tax on major oil companies’ profits on crude oil priced at more than $50 per barrel.” Where does one begin to address such breathtaking economic ignorance and political demagoguery? The options are many. Let’s start with a simple question: Is Exxon responsible for oil’s price exceeding $50 per barrel? Not in the slightest.
Crude oil prices are high because demand is high relative to supply. Is it Exxon’s fault that China, India and numerous smaller countries are growing like gangbusters and demanding more of the commodities—like oil—that increasingly affluent people everywhere consume? Of course not. And should we blame Exxon for the current tight supply of crude? Hardly. In fact, I suspect that Exxon would love nothing more than to increase its production of crude; after all, it is in the oil business.
Casey’s proposal rests on the dubious premise that Exxon should be penalized for circumstances that are beyond its control. Hmmm, aren’t Democrats supposed to be the party of “fairness”? In fact, we have here an extreme case of unfairness, for while Exxon did not cause the supply of crude to be as tight as it is, Congress itself, of which Sen. Casey is a new member, did. Congress—particularly Casey’s own party—has been putting obstacles in the way of domestic oil production for years. Whether the prospective oil targets were in Alaska, the off-shore continental shelf, or the rich hydrocarbon resources in the Rocky Mountain states, Democrats in Washington have blocked exploration and development, apparently preferring to keep us dependent on oil imports. (Question: Why is it that Democrats decry our trade deficit and our dependence on oil imports and then adopt policies that cause the effects they denounce?)
Another question: What is so objectionable about the oil industry’s profits? They fluctuate from year to year, but perennially are only about half the rate of profitability of the banking and insurance industries. In addition, over the last two decades, the total profits of American oil companies have been far less than the revenue that government has received from the excise tax on gasoline. That’s right—the oil companies bear all the risk and hugely expensive costs of developing petroleum resources, yet government—which bears none of the risk—receives the lion’s share of the reward. In a good year, Exxon may earn a 13-cent profit on a gallon of gas, whereas Uncle Sam gets 18.4 cents from the excise tax charged at the pump (Harrisburg gets another 31.1 cents per gallon) and this has been going on for decades. If anyone is earning a “windfall profit” from gasoline, it is government, not the oil companies.
Here’s another question that Casey ignores: What does Exxon do with its large profits? Certainly, a portion of them go to those who have invested in its shares. (In fact, this suggests a way for middle-class Americans whose net worth is too small to get involved with hedge funds to hedge against the rising price of gasoline: buy some Exxon shares and use the dividend checks to pay for an occasional tank of gas.) In addition to generating taxable income (another cash stream for government) for its shareholders, Exxon spends big bucks in developing and producing the energy that we all need. In fact, in the two decades spanning 1987-2006, Exxon spent a sum greater than its total earnings on oil and gas projects. Just think of how much more precarious our present energy situation (and how much higher gasoline prices would be) if, during these past 20 years, Exxon had not ploughed $279 billion into bringing additional supplies to market. Today, with China and India scouting the globe to secure supplies of petroleum for their booming economies, our government would be well-advised to adopt policies that do not impede the ability of American oil companies to procure additional energy resources for our own country.
It is fashionable on the political left to denounce big businesses, and Big Oil is one of the left’s favorite targets. One final question you should ask yourself before endorsing Casey’s confiscatory proposal: Will America’s energy future be more secure if the capital of American oil companies is diverted into a new federal redistribute-the-wealth program, complete with its own bureaucracy of civil servants? At a time when much of the world is recovering from the debacle of government planning, it is astounding that some of our leaders seek to take us on that discredited path.
- Biden Resumes Obama’s Efforts Against Domestic Oil Production - July 13, 2021
- Biden economic team predicts long-term slow growth - June 30, 2021
- The Worst-Kept Economic Secret in America: High Inflation Is Back - May 19, 2021
- Raise the Corporate Tax Rate? Economic Obtuseness in High Places - May 12, 2021
- Washington’s Bi-Partisan Fiscal Folly - May 6, 2021
- The Problem with Hedge Funds - April 13, 2021
- Wall Street Outsiders Versus Hedge Funds - February 1, 2021
- The Problematical COVID-19 Relief Legislation - January 14, 2021
- Giving Thanks to Society’s Economic Benefactors - November 19, 2020
- Why Fracking is a Big Issue - October 30, 2020