An oily argument

To the Editors,

America’s largest oil and natural gas companies recently reported quarterly earnings, and as expected, profits were up. But the caricature of fat-cat energy executives lining their pockets at the expense of the everyman doesn’t hold up to scrutiny.

ExxonMobil posted quarterly earnings of $10.7 billion on Thursday, up 69 percent from last year. And on Wednesday, ConocoPhillips reported quarterly earnings of $3 billion, reflecting an increase of 43 percent from a year ago. Impressive, but not shocking given the current price of crude oil.

No less predictable was the outrage voiced by politicians. President Obama called for new taxes on the oil industry, and Senate Majority Leader Harry Reid promised to introduce legislation to that effect when Congress is back in session.  

Talking tough when pump prices are high might be safe politically. After all, it’s easy to get outraged while people struggle to fill their tanks. But we should consider some facts about the American energy industry before breaking out pitchforks or enacting knee-jerk policies.

Yes, pump prices are high, but companies like ExxonMobil and Chevron have as much control over the price of gasoline as they do the price of speeding tickets. The single biggest factor affecting pump prices is the cost of crude oil, which is set by global futures markets subject to the laws of supply and demand.

Right now the recovering global economy, Mideast turmoil and declining dollar are driving up the price of crude. The truth is, ExxonMobil can’t control the price of a barrel of oil, but the higher price naturally results in higher revenues.

No one is asking drivers to shed a tear for gasoline stations forced to charge high prices at the pump. But equally unfair is the assumption that those high prices mean 24-hour champagne and limos for company executives. The U.S. oil and natural gas industry actually operates at lower margins than most American manufacturing.

In arguing for higher energy taxes, politicians cite that America’s five largest oil and gas companies had a net income of $484 billion from 2006 - 2010. What they don’t tell you is those companies’ profit margins during those years were 6.65 percent, below the U.S. manufacturing average.

Because of the large size of the industry, profits sound exorbitant when stated in absolute dollars. But those dollars are distributed to millions of ordinary Americans who are shareholders and plowed back into oil exploration and next-generation energy R&D.

The caricature of greedy oil company executives falls apart even further when one considers who owns most energy companies. Only 1.5 percent of oil and gas shares are owned by those companies’ executives. Fifty-three percent of the shares are owned by mutual funds and individual investors. Twenty-seven percent are owned by pension funds, and 14 percent are held by IRAs. In other words, average investors, people who have begun saving for retirement, and retirees benefit from their investments in energy companies – and these investments are paying off.

A new study examined the performance of oil and natural gas investments in the two largest public employee pension funds in four states: Michigan, Missouri, Ohio and Pennsylvania. The oil and gas investments had returns between 41 percent and 49 percent from 2005 - 2009, while the funds’ non-oil and gas investments had returns between 10 percent and 17 percent. And the gains are not just enjoyed by a select few – these funds account for between 50 percent and 89 percent of the total membership and total assets of all public employee pension programs in these states.

The Obama administration’s 2012 budget proposes almost $90 billion in new taxes for the U.S. oil and natural gas industry. These taxes will hurt ordinary Americans and public employees, and the energy industry already pays one of the highest effective income tax rates in the country. About 44 percent of every dollar earned by oil and gas companies goes to income taxes, while retailers pay about 33 percent.

Caricatures shouldn’t be the basis for government policy. In reality, energy profits have not been excessive compared to other industries, are plowed back into exploration, and benefit ordinary Americans. Congress and the Obama administration shouldn’t impose higher taxes or other sanctions on the industry. Instead, they should eliminate barriers to oil production, helping consumers at the pump.

– Lawrence J. McQuillan, Pacific Research Institute, via email

Both sides of Tipton’s mouth

Dear Congressman Scott Tipton:

Greetings from Colorado. Thank you for serving the people of Southwest Colorado. Recently, I received a glossy, four-page mailing from your office. The topic of the taxpayer-funded mailing was Social Security and how you are committed to seniors and the accrued benefits they have vested with the U.S. over many years working and paying tax. Curiously, I see a disconnect between your statements and your actions.

Your mailing mentions that we, the American people, have a “spending crisis” that threatens the stability of the accrued benefits. You represent the party and the philosophy that created the “spending crisis.” You and your party support tax cuts for corporations and wealthy individuals. How can you proclaim an affinity for preserving accrued benefits and vote to put those benefits at risk by promoting policies that are detrimental to those programs? My expectations for leadership involve much more than regurgitating party lines and rhetoric of partisanship.

You write that a bipartisan approach is needed to resolve the issue and in the next paragraph attack the U.S. Senate for bringing their ideas to the discussion. I am asking you to stand by the people who have funded the benefits over their working years, yes, they worked for the same corporations and businesses and made those entities profitable. Take some leadership for the people of your district, Sir.

– Sincerely, Will Parallel, Durango

Churning out tax dollars

To the Editors,  

Some members of Congress are proposing a tax on stock transactions. Such a tax would have very little impact on most of those buying and selling stocks because of proposed tax limitations on ordinary transactions.

A stock transactions tax would incur extra costs mostly to those who are speculating by perpetually buying and selling the same stocks multiple times a day. It’s what’s known as “churning.” Those engaged in that practice usually turn a small profit on each transaction, but make many millions on sheer weight of trading volume. I fail to see how churning benefits anyone but the speculators.

Even though a stock transactions tax, as has been proposed, would be .0025 percent, it would have negligible effect on most investors. It’s estimated that a stock transactions tax would generate about $50 to $100 billion dollars a year in tax revenue – no small piece of change!

It would be nice to see such additional revenue go toward payment of our national debt instead of into the pockets of Wall Street speculators.

– Paul G. Jaehnert, via email