Who is subsidizing whom? (Oil and Gas)

Who is subsidizing whom?
March 15, 2012 | Posted by Ken Cohen

In its lead editorial yesterday, The Wall Street Journal took a hard look into the Obama administration’s campaign to end so-called “subsidies for Big Oil.” The paper’s conclusion turns the administration’s claims on its head: “The truth is that this industry is subsidizing the government.”

This is the flip side of the coin that few realize – the oil and natural gas industry is an enormous source of revenue for the U.S. government.

In fact, the industry pays the federal government approximately $86 million a day – or about $31 billion a year – in rents, royalties, bonuses and corporate taxes. That doesn’t even include the payments made at the local and state levels.



At times, the industry is actually sending more to local, state and federal governments in taxes and fees than what it earns in the United States. According to the Journal:

“Not paying their ‘fair share’? Here’s a staggering fact: The Tax Foundation estimates that, between 1981 and 2008, oil and gas companies sent more dollars to Washington and the state capitols than they earned in profits for shareholders.”

And, keep in mind, the taxes the oil and gas industry pays are only part of a much larger contribution to the U.S. economy. Our industry and the activities that support it accounted for more than $1 trillion of the U.S. economy in 2009, or about 7.7 percent of U.S. gross domestic product, according to a recent study. The industry contributes an estimated $470 billion a year in spending, wages and dividends alone.

So what about those “subsidies” that oil and gas companies supposedly get?

“These aren’t direct cash handouts like those that go to the green lobby,” the Journal says. “They’re deductions from taxes that cover the cost of doing business and earning income to tax in the first place. Most of them are available to other manufacturers.”

I’ve talked at length on this issue, but it bears repeating – attempts to misrepresent the industry’s tax contributions are nothing more than an attempt to pick winners and losers in the marketplace. The fact is that taxpayers would benefit far more from the revenues associated with increased access to U.S. energy supplies than they would from punitive tax measures aimed at oil companies. Policies that support greater energy development could generate $800 billion in government revenue by 2030 through lease sales, royalties, production fees and taxes, according to a recent study.

So when taxpayers see these claims about “subsidizing” oil companies, I think it’s valid to ask: “Who is subsidizing whom?”

http://www.exxonmobilperspectives.c...ampaign=Perspectives_-_Oil_and_Gas_Tax_Policy

This isn't current as it was published last year, but the numbers are interesting nonetheless.

 

Rent-seeking has to be taken into account. Without an economic view of profit, we're left with inappropriate accountancy measures that do not provide any genuine means to evaluate 'fair share'

 

Profit margins for the oil companies.. They have been steady at about 8% for decades.

 

Please provide an empirical source that shows 'steady' profit over 'decades'.

 

As the table below shows, the Integrated Oil and Gas industry made an average profit of 6.2 cents per dollar of sales, which ranks #114 out of 215 industries by profit margin, and puts oil companies right in the middle of industries by profitability.

If the Senate Finance Committee wants to investigate "excessive" or "windfall" profits, they might consider going after some of the other industries that have benefited from higher commodity prices and achieved much higher profit margins than oil (at 6.2%), like silver (44.7%), copper (24%), gold (21%), and industrial metals (21%) and lumber (17.7%).

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http://seekingalpha.com/article/269...margin-ranks-fairly-low-there-are-bigger-fish

 

http://mjperry.blogspot.com/2011/05/oil-profit-margin-ranks-114-out-215.html

 

A poor source. You said that the companies make steady profit over decades. That is an absurd statement. As an example, Oil Daily reported a 42.6% increase in net income for ExxonMobil in 2005 (at a time when quantity was typically falling). To deny the windfall profits that are available isn't cunning!

 

Profit MARGINS have been between 6.5 and 8 % for decades. Quantity isn't falling.. There's no shortage in supply.

 

Sounds like you've been bought by the propaganda. The period I referred to, where net incomes dramatically increased, saw reductions in oil production in 4 of the 9 companies mentioned (and 7 of the 9 in natural gas production). The increase in price led to the net income increases (42.6% for one company; 66.4% for another). Why bother to ignore these obvious windfall effects?

 

Oil companies don't store oil.. Its just in time inventory,.

 

Its not difficult: Total revenue equals price times quantity; we know the substantial increase in revenue reflects price! Again, why are you such an apologist for oil company profiteering?