November 10, 2005

Oil Company Profits vs. Government Gas Taxes

Today, I was reading a newspaper article concerning the recent Congressional Witch Hunt in the Oil Industry for "absurd profits", which apparently total around $33 billion. As I read, I began to wonder how this compared to government profit on the oil industry via taxation. A brief internet search quickly confirmed my suspicion that US governments actually collect more in taxation than oil companies receive in profits, at least until they have since I was born until perhaps this year:

Tax Foundation

Apparently, while the oil industry is reporting profits of around $33 billion, Federal and State governments are collecting more than that. Last year, oil profits totaled $42.6 billion while government taxes collected $58.4 billion from gas taxes alone. Assuming that the oil companies actually sell more than gasoline (which is quite reasonable since oil is used in the production of tons of products, from kerosene, to motor oil, to plastics), that means that oil company profits from all gasoline and all those other products are less than the governments revenue from taxation on a single product (admittedly, probably the largest by far) of the oil industry. Of course, the number reported as corporate profit is probably far below corporate gross revenue, which most likely far exceeds government income from gas taxes. However, the difference between the gross revenue and profits will be used to pay wages and invest in capital stock.

I couldn't find oil revenue quickly, but I found an article on Exxon that gives a brief example of revenue vs. profit:

Washington Post

Interestingly enough, I have heard it suggested that one possible contributor to the "high" profits of oil companies is the lack of incentive for them to invest. As we learned after Katrina hit, there are not many oil processing plants in the US, largely due to excessive government regulation. The inability to adjust for the shock of the damage of Katrina contributed to a relative shortage of gasoline which increased it's price, following the principles of supply and demand.

However, if oil company profits are increasing by about 75%, it is possible that we oil company profit might exceed government revenue from gas taxes this year. Assuming the 75% increase is recent and generously estimating an actual 50% increase over the year, one could predict that oil profits will be about $63.9 billion this year. In other words, unless government revenue increases by about $6 billion this year (around a 10% increase) oil companies may actually profit more from their endeavors than the government does from taxation of one of their products for the first time in my life. Perhaps thats what really has Sen. Barbara Boxer outraged, a US company profiting more from their own enterprise than the government! What a horrible outrage!

Perhaps instead of excoriating executives and proposing that government tax oil companies more, she should really ask why government needs to make gasoline prices so high...

3 comments:

Kenpo said...

Umm... buy my stuff? These posts are ridiculous.

Anyhow, on the "government making gas so expensive" front, isn't gasoline subsidized by the Federal government? In European countries where it isn't, gas is the equivalent of $5+ per gallon. Or so I've heard it said...

Anonymous said...

The actual cost of gasoline in Europe is the same as in the U.S. The reason it costs more is massive petrol tax per liter.

U.S.fed and state taxes are no way near as much but their combined windfall profits are close to double that of the oil companies.

We need to have congress taken before congress for an investigation!

Anonymous said...

Oh. One more thing. Higher crude prices are the result of lower supplies due to higher world wide demand.

We have massive deposits off the coast of Florida but congress won't allow American companies to drill.

China is partnering with Cuba to drill 45 to 50 miles off the coast of Florida. Do you think Chinese drilling technology is safer then that of American companies?

There goes the beaches of southern Florida!