Make Big Oil Pay Back Its Profits
There's a reason that, even though Prius sales are up and sport utility vehicles are being given away with Caribbean cruise packages, gas prices remain high. Consumers don't control prices; gas companies and traders do. Which makes their chief executives quite happy.
We need a real windfall tax -- not as some knee-jerk reaction to a whiny public full of parents with multiple SUVs but because, without taxing the growing chasm between the cost of buying and refining crude oil, we won't divert enough money into alternative sources that will ultimately reduce demand and thus prices. And the fact that the House voted to revoke part of a windfall tax break, a $7 billion reduction in a previous tax break, doesn't cut it.
As drivers struggle at the pumps, Lee Raymond, former ExxonMobil chief executive, was just inducted into the Texas Business Hall of Fame after leaving the firm with a huge exit package. According to consumer advocate Ralph Nader, "A company that spends $400 million on its outgoing CEO clearly has no idea what to do with its money."
I don't buy that he's worth that much, or ExxonMobil's company line: that it is a passive participant in the global market and is racking up record profits by pure chance (which calls into question why it paid its former chief so much).
The other Big Five oil company refrain is that prices are cyclical; that companies need to hoard profit during good days to use on rainy ones. That they're investing it in a way that will ultimately reduce gas prices and help ease public pain at the cost of their future profits. If you believe that, there's some empty land in the Arctic National Wildlife Refuge waiting for you.
Despite a tiny decline in pump prices this week, industry analysts say the price of crude oil (a barrel of which produces 42 gallons of gas once refined) will probably increase based on a range of factors: civil unrest in Nigeria, threats of production stoppages in Iran and anything going on in Iraq.
The other reason analysts cite is supply and demand; people want more gas than there is excess capacity (crude in the ground waiting to be tapped), which jacks up the price.
Meanwhile, oil company chief executives keep making public relations rounds in the unlikely dual roles of conservationist ("don't waste it") and victim ("we just pass on our costs") as if saying: Don't shoot the messenger. Considering the messenger's costs haven't increased by as much as gas prices - the companies' effective federal tax rate (at an average 13.5 percent) is lower than our individual rates (of 35 percent) and they can produce more gas than we can in our living rooms -- a little shooting is in order.
In Las Vegas, the house always wins because the house sets the rules. In Washington, oil companies and their lobbyists pay plenty to stack the deck ($58 million, 81 percent to the GOP since 2001). As one cabbie told me, "I wish I had my own lobbyist." Free-market alarmists bristle that last time we had a windfall tax (the 1970s and late 1980s), it spelled recession. They warn the cost will get passed to consumers. Last time, more than five companies controlled 60 percent of our oil refineries, chief executives weren't awarded platinum parachutes (just golden), and hedge funds and traders didn't command half of crude oil futures trading volume - causing speculation that exaggerates price moves.
If we really don't want to repeat the past, we should break up the oil and gas industry to increase competition and get the Commodity Futures Trading Commission to regulate oil speculation. The Securities and Exchange Commission could put an additional tax on margins required to trade oil futures. Congress could require oil companies to keep higher actual reserves, rather than doing it artificially through trading in the markets.
Yes, Congress threw out some dumb ideas, like the GOP special of handing drivers $100 gift certificates. Even the suggestion about fining gas gouging turned out to be an expensive witch-hunt compared with the legal methods by which Big Oil extracts Big Profit.
There are some good ideas though, too. Sen. Bryan Dorgan's (D-N.D.) windfall tax is one. It calls for a tax on excess profit unless it's diverted to exploration and development. This gives ExxonMobil and the other companies the option: pay up or use that money for investments that reduce the pump pinch. They don't want to do either.
Tyson Slocum, director of Public Citizen's energy program, says, "A meaningful shift in U.S. energy policy would send a signal to the commodities markets that could ease prices." Likewise, a tax on speculative trading would help dampen sudden price spikes.
Also helpful would be repealing all the tax breaks that have translated to shareholder value, but left consumers cold. Yes, we can and should conserve gas. But, if we do our part, so should corporate America; if not by will, then by congressional force.
This article first appeared in Newsday. It is reprinted with permission of the author.