Friday, June 13, 2008

Obscene Profits

Both Senator McCain and Senator Obama have gotten into the latest, greatest game of bashing Big Oil for "obscene profits,' as Senator McCain called them recently.

Here is the definition of profits:

1. An advantageous gain or return; benefit.
2. The return received on a business undertaking after all operating expenses have been met.

Certainly Big Oil is benefiting from the sale of gas. Why else would they be in the oil business? And after they have undertakentaken the business of finding, refining, distributing, advertising, and selling gas, they are receiving a return.

On the average gallon of gas, the profit for oil companies is 8 cents. So, if there are 360 million gallons of gas purchased in the US each day, Big Oil will pocket $28.8 million.

So, Big Oil is profiting from all their work. But are they the only ones?

The government also benefits from the sale of gasoline. Though they don't undertake any of the business involved in the production and sale of gas, they nonetheless get a return on the investment of others.

The federal tax on a gallon of gas is 18.4 cents. The average state tax is 22 cents per gallon. So, if there are 360 million gallons of gas purchased in the US each day, government will pocket $144 million.

Somebody is gouging us at the pump, but I'm not so sure it's Big Oil. For doing absolutely nothing to contribute to the production and sale of gas, our governments are making 5 times more than the people actually doing the work.

That is obscene.


J Wolf said...

That obscene profit you're talking about is an effective use tax that builds and upkeeps roads, bridges and infrastructure.

If you don't want to pay for roads, than don't use them - it's the principle of the use tax that makes almost too much sense.

Oil companies say they use their "obscene profits" for R&D, but why would an oil company want to produce a product that is so effective that their current product would be useless and you would need their services less.


It sounds identical to the health care dilemma. We're asking the corporations to give us preventative care so that we never need them and make their services useless.

We're asking the oil industry to self-destruct. I would rip people off while I could too.

Robb said...

Justin, you don't think that the tax revenue collected from gas sales is used exclusively for roads, do you? Do you also believe that there is a lockbox for social security taxes?

And ... I hardly think that an 8 cent margin is ripping people off.

Anonymous said...

Democrates "Nix drilling in Anwar".

Republicans "Nix windfall taxes on big oil companies".

Who is in bed with these politicians? Hmmmm???

J Wolf said...

I know that those tax dollars are used for other purposes too, but your rationale in the original post sounded as if you disagreed with the whole idea of gas taxes - and I'm just saying they are necessary.

Some states have raised them to the point of ridiculousness, but with the derelict condition of our nation's infrastructure - I see a federal gas tax as necessary. And killing the gax tax for the summer is only going to hurt our country's transportation system instead of saving the pocketbooks of Americans. (Wanna take a stab in the dark as to who I'm voting for in the fall?)

I don't really think the 8 cents is ripping us off, but I am upset because I don't believe the oil companies are using that 8 cents to develop effective alternatives.

Robb said...

Justin, did I say that I am against a fair and reasonable gas tax? Did I say that I support a gas tax holiday?


I said that it is obscene for politicians to complain about Big Oil profits when the government profits (for doing nothing) on a gallon of gas are 5 times greater than oil companies'.

Anonymous said...

What about a fair and reasonable profit? Have the oil companies crossed that line?

Robb said...

8 cents a gallon seems fair and reasonable to me. From what I heard, their margin is something like 6.9% which also seems fair and reasonable to me.

Matthew said...

Good commentary, Robb.

I think, though, we're probably going to have to get used to the idea that while we have the rights to "life, liberty, and the pursuit of happiness", nobody said anything about the right to cheap oil/energy (the sense of entitlement in this country on just about anything one can think of has reached truly preposterous levels in recent years).

I do think "we the people" are going to have to get it across to Congress that we would VERY much like them to stop making it so impossible to utilyze our plentiful energy resources and that any research into alternative approaches should emphasize energy sources that are actually feasible in the real world (like, say, nuclear--if France can pull it off, I don't know why we can't) and that don't entail screwing our fellow man by burning food.

I don't know of any practical way to do this though. I was thinking about starting a nice petition, but I just don't think it would work. :-(

At least we can comfort ourselves that we're not quite to the point of "a day's wages for a loaf of bread" (yet); although, it will be interesting to see where we're at by the end of the summer.

Anonymous said...

Let's post the facts:
73% for crude oil
11% for state and federal taxes
10% for refining and profit
6% for distributing and marketing

Assuming $4.00 a gallon this is the breakdown in dollars.

$2.82/gallon crude oil
$0.44/gallon state and fed taxes
$0.40/gallon refining and profits
$0.24/gallon distribution/marketing

This is a good example of the 80/20rule at hand. So who is getting rich? Hmmm, let's see. Who are the top 25 crude oil producers?

1. National Iran Oil Co.
2. Saudi Arabian Oil Co.
3. Iraq Oil Co.
4. Qatar Oil Co.
5. Abu Dahbi Oil Co. UAE
6. Kuwait Oil Co.
7. Petro Venezuela
8. Nigerian National Oil Co
9. National Oil Co. Libya
10.Sonatrach Algeria
11.Gazprom Russia
13.OAO Rosneft Russia
15.OAO Lukoil Russia
16.Petro Mexico
17.ExxonMobil US
18.BP Corp UK
19.Egypt Oil
20.Chevron US
21.ConocoPhillips US
22.Total France
23.Petro Oman
24.Petro Brazil
25.Royal Dutch Shell Netherlands

The cause of occurance is lack of supply with huge demand. Majority of supply is held by foreign nations.

How to correct the problem:
>Get off foreign oil or own the foreign oil
>Look for alternative fuel sources

Enough rant.