Should We Really Tax “Radical” Oil Profits?

Many of you have heard the complaining or have been the ones complaining about the record profits that oil companies are making. ExxonMobil recent released their high record earnings for oil and natural gas, showing a $11.7 billion profit this quarter. This is the most profitable quarter for any company, ever. Barack Obama has called Exxon’s profits outrageous, suggesting a $1,000 rebate for working couples; this attractive rebate would be funding by “a windfall profits penalty on oil selling at over $80 per barrel.”

It’s hard to deny that for the average American, this is a very appealing proposal. The big oil companies are making record profits – shouldn’t we get a piece? As is expected, the concept of a federal handout is appealing to those who receive the handout, but we should consider the principle of the matter. Why should we get a portion of a public companies profits through tax? Did they lie, cheat, or steal? No. They’re simply being successful in the free market. Some argue that this taxation on windfall profits is necessary. Is it? Let’s look into it in more detail.

Worth noting is the fact that Exxon Mobil’s earnings actually fell short of what analysts predicted, which resulting in their stock price actually dropping. More importantly, the company’s net profit was a modest 8.5%. That’s a good profit margin, but it isn’t fantastic. Moreover, a company that has a mere 8.5% gain shouldn’t be taxed excessively with a profit penalty. That being said, few people know the difficulty it is to actually get the oil America has grown to depend on. Oil companies have to explore and produce oil, which requires large amounts of capital. Many times this process can hurt the company significantly, so there is a large amount of risk involved. When you contrast the 8.5% profits to a near 20% profit by Coca-Cola, things are put into a better perspective, especially considering that many regard oil as a necessary and soda as a luxury. Following the ideology of many people today, Barack Obama included, all companies that make more than Exxon Mobil’s radical 8.5% profits should have a penalty, profit tax. Not only does this go against the concept of liberty, the concept of taxing someone for being successful is fundamentally wrong.

The idea of taxing profits that aren’t excessive or placing a price cap goes against gthe entire concept of the free market. I would propose that with one comes the other. If we place a windfall profits tax on big oil companies, what do you think will happen? It doesn’t take a genius to figure it out – they’ll raise the price even higher to make up for the new tax! If the federal government increases tax on Exxon on other companies, it makes economic and business sense for the company, in turn, the raise their prices to make up for their decrease in revenue. If that happens, gas prices will spike even higher, leaving us with a choice; remove the profits tax, add a price cap, or live with an increased price for oil and gasoline. No one wants to pay high prices, so I think it’s practical to say that many legislators would propose we add a price cap. If they artificially force the price lower, this will result in a shortage. Not only will we have a shortage of fuel, but we will have a increased demand. With lower prices, people will want to travel more, but will be unable to do so because of the shortage.

The solution is to help create opportunities for entrepreneurs to find new ways to get oil, increase our supply by use of domestic oil, and explore alternative fuel options. Price ceilings, profit taxes, and more restrictions on the free market are not the solution and will only harm the economy and the average consumer, despite how just or attractive politicians make it sound.