With the price of gasoline rising by the day, the President has a problem. People perceive that he can, and should do something about it…now. Expect to hear the following in the coming months.
“If you reelect me, I will tax the ‘excessive profits’ made by the oil companies and eliminate all of the subsidies to big oil.”
When you hear this “promise” you need to know the following.
Big oil gets absolutely no tax subsidies. The closest thing to a subsidy was the $6 billion a year that oil companies received to offset their cost of blending ethanol into gasoline. That subsidy was ended at the beginning of this year. Now, you and I will pay for the privilege of of having a less efficient “fuel” blended into our gasoline via higher gas prices.
What “big oil” does get is depreciation expense, as does every other company in this country, and depletion allowances, as do, among others, coal and natural gas companies. Is the President proposing that we delete all depreciation expense and depletion allowances from our tax code, or just those applicable to “big oil”?
And, what will that do to the price of gasoline?
So, what about what the President will call “excessive profits”? The oil companies already pay an effective tax rate of 41% compared to the effective tax rate of 26% for the average of all other companies.
For every dollar taken in by companies, here is a list of their profits:
- Pharmaceuticals make 22.6 cents per dollar in profits,
- Computer manufacturers make 21.8 cents per dollar in profits,
- Beverages and tobacco make 20.1 cents per dollar in profits,
- Electronics and appliances make 12.6 cents per dollar in profits, and
- Oil companies make 6.7 cents per dollar in profits.
So, there are no subsidies to big oil, and, big oil’s profit margin pales by comparison to other industries. But, the scapegoat du jour will now be big oil.
What else can he say?