Obama's Oil Company Windfall Profits Tax and the Wall Street Journal's Celebration
Friday's Wall Street Journal editorial, "Barack's Windfall Reversal," in barely contained gleeful terms crowed that a transition spokesman "explained this week that that the drop in oil prices to $50 barrel has made the windfall tax a dead letter." The editorial goes on to point out with degree of "I told you so" smugness, "left unexplained was why the oil companies suddenly decided to stop profiteering, or manipulating commodity prices."
Exactly the point. The oil companies were not manipulating commodity prices. Their role was limited to cheering on OPEC and lobbying our government to remain dangerously benign, playing ostrich to OPEC's manipulation of the oil market.
You see, cartels are most effective in rising markets where supply is relatively balanced or there is perceived shortage of supply, thereby causing the cartel's manipulations to be supportive toward ever-increasing prices. Discipline among cartel members is readily maintained in that revenue from lower production is made up from higher prices.
And as the oil hedge fund speculators got blown away this year and as the world's need for oil began to recede in the face of economic crisis, OPEC's control of the market began to fade in classic cartel tradition. As supply moves from shortage to balance and oversupply, control of the market begins to slip away from the cartel. Revenues from reduced production can no longer be made up from higher prices and the discipline of the cartel begins to collapse. The OPEC cartel has no enforcement capability in place to police production quotas of its members, and the propensity for cartel producers in analogous situations has most always been to "cheat" around the edges.
More than anything, the march to $147/bbl this year was in large measure due to the OPEC cartel's success in manipulating the supply of oil on the world market. Its success was tantamount to a cartel imposed tax on consumers here and throughout the world. It had nothing to do with the free functioning of the marketplace. At this very moment OPEC is plotting to curtail production again at its scheduled December meeting in the hope of changing the free market dynamics of the market from current price softness (at the beginning of the Bush presidency the price was closer to $20/bbl so even here "softness" is relative) toward programming tighter supply and higher prices.
Should OPEC be successful in any way in regaining their hegemony over the market the new Obama administration should make it clear that the imposition of the oil windfall profit's tax will be applied forthwith, in that higher oil prices under these circumstances and in turn higher oil company profits have nothing to do with the workings of a free market.
It is past time that the vastly profitable "socialism for the oil companies" came to an end!
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Having worked for a CPA firm that had a lot of oil & gas clients in the 1980s, I'm opposed to a windfall profits tax. Instead, I believe it is time to revist percentage depletion, which can be deducted even if the taxpayer has recovered his basis in the property. With depreciation and cost depletion the deduction is limited to basis.
"Depletion" is a fancy word for "depreciation"... which is only possible with capital assets rather than income. Imagine applying for a loan based on the "income" in your savings account. The lender would call security to remove the crazy person from his presence, but that craziness is exactly the conventional accounting that calls oil production "income."
The delusion of classifying oil production as income rather than natural capital is at the root of a lot of bad behavior. Sensible businesses set aside the depletion to replace their depreciating capital. Unlike the Europeans who heavily tax a depleting capital resource (oil) so they can provide alternatives like mass transit, the U.S. does no such thing.
Somebody help me out here. Shouldn't the time to enact a Windfall Tax be now, even if it wouldn't be immediately applied? It seems to me that waiting until later is just another way of saying, "Whew, got that out of the way!"
Maybe we should pass a windfall profits tax on the semi-conductors too when they are being really profitable again. Or how about the mining companies and the steel companies that became extremely profitable over the past several years? Or why not the trucking companies whose business usually picks up first in an economic cycle - we could get a lot of extra money from them right? Or how about pharmaceutical or biotech companies that have margins that are huge compared to oil companies? But at the same time, why is the idea of a corporate tax cut being thrown around? It's even supported by many Democrats, maybe even the President elect????
As soon as they started talking about the speculators in the futures market and regulation, whoosh, the price went into free fall. So much for that "peak oil" excuse of supply and demand. We reduced demand by 1% and the price fell 50%.
If Obama would look into "profiteering" and do some windfall tax on the $147 oil, a little retrospective tax, I don't see harm in that.
Nice trolling. But you might have noticed that demand is significantly down, not 1% but 10%. Worldwide demand fell by a couple million barrels, which, given that we have no spare capacity, is huge. The price hasn't stopped falling, as you might have noticed and if there are any speculators out there, they should be making money head over heels right now because futures bets on falling prices are just as profitable as bets on rising ones. Speculators only care about the magnitude of change, not the sign of change.
A retrospective tax? Would you please show us the legal framework for that?
We just went from the biggest and longest asynchronous global economic boom since the 1970s, one where there was little spare oil producing capacity, to perhaps the biggest asynchronous global economic bust since at least that time. Do you expect oil prices to stay flat throughout this boom and bust scenario or don't you think it makes sense that oil prices go down?
I prefer not to be forever dependant on OPEC. America needs to get serious about Energy independance, regardless of the oil prices being low.
I agree! But if we did not need to have our armies stationed in the Middle East to secure our "national interests" then how would the MIC make its profit? Who would we demonize as our enemy to stay on a war footing in order to scare the Red State voters and ensure neo-con reelection? And if we were energy independent, how on earth would we ever justify our ever expanding empire and persistent meddling in the affairs of other countries around the world? How would we explain the need for ever expanding debt and the interest payments the Government makes with OUR money to the banks that profit most from these wars and invasions?
I just don't think energy independence is going to work. Too many fat cats in the circlejerk of profit making.
I agree! But if we did not need to have our armies stationed in the Middle East to secure our "national interests" then how would the MIC make its profit? Who would we demonize as our enemy to stay on a war footing in order to scare the Red State voters and ensure neo-con reelection? And if we were energy independent, how on earth would we ever justify our ever expanding empire and persistent meddling in the affairs of other countries around the world? How would we explain the need for ever expanding debt and the interest payments the Government makes with OUR money to the banks that profit most from these wars and invasions?
I just don't think energy independence is going to work. Too many fat cats in the mutual self pleasuring of profit making. (Better?)
You make a good point. I hadn't thought of that. Also, if we don't continue to use as much oil as possible, our good soldiers will be dying in vain.
The idea that the the march to $147 a barrel earlier this year was in large measure due to the OPEC cartel shows the author isn't familiar with the oil market. The increase in the oil price was more to do with the increase in demand relative to the lack of increase in production capacity, than a lack of supply on the market (although the diesel market was very tight globally). Spare oil production capacity has been very growing small year by year threatening the possibility of future shortages unless demand mitigates or new producing capacity comes on line. The increase in the oil price also had to do with the interest rate cutting from the federal reserve and the drop in value of the dollar. Oil was much cheaper obviously in euros and many other currencies. There was a lot of speculative money in the market as well while these fundamentals were so bullish for prices ,and there was always the threat of supplies in many troubled areas like Nigeria and from the saber rattling of Iran. The influence of OPEC restraining supplies had very little do with the increase in the price of oil.
Let's look at this logically. The Oil Companies controll how much and when oil reaches the refineries, and when it leaves the refineries for sale. This has a huge impact on pricing, as does under-utilization of refineries in general.
But that aside, let's think about how the wealthiest companies in the world spend their wealth? A great deal of their cash is not just allowed to sit in a drawer somewhere collecting dust!
It is put to work in the very markets that they control! A few energy related hedge funds moving blocs of purchases and sales of oil can have a profound effect on the market price as well as the perceived scarcity or abundance of it. These guys are Very sophisticated financial players--not just oil field roustabouts. In this less than free market, manipulation of price and appearance of availability has been raised to an art form.
I refuse to give the Big Oil companies a free pass on this one. They did make a whole lot of money off of stupid high oil prices. They were in on it as well. Big Oil could have made the whole house of cards (Saud) crumble by calling it price fixing. But they were all blessed by having an Executive branch full of Oil people that just wanted to take that extra cash out of my pocket and give it to their friends.
In my humble opinion there are two reasons the price of oil has dropped, first Americans and maybe the rest of the world could not afford $150 Bbl oil. I know other places around the world pay much more for Gas but it was too much and we all started using less. It is true that we need oil to function but if we all use a little less the amount we need is greatly reduced.
There is going to be a new Sheriff in town and he is not going to turn a blind eye to profiteering. He may not look back at the gouging (bummer) but I think he is going to stop it if it happens again.
We never needed a windfall profit tax to begin with. What we do need is a 100% gas tax, and not just since yesterday. Had such a tax been on place, we would never have bought into gas guzzlers, the oil market would never have seen nearly as catastrophic a supply-demand situation as this summer and the price of oil had never gone nearly as high.
And did I mention that we wouldn't be half as dependent on imports as we are right now?
A heavy gas tax would have been a win-win-win solution for 30 years. Which is probably the reason why we won't have one for another 30, until oil finally becomes irrelevant.
A "windfall profit tax" is a stupid, unAmerican concept anyway. It is theft, plain and simple.
and the stealing of money right out of your pockets by bushcorp the last 8 years was perfectly fine with you?
There has been no stealing of money right out of our pockets by the Bush administration. I don't understand how anyone could possibly think that.
bush/cheney were responsible for the 150 dollar a barrel oil by their hoarding of crude (the only policy we know about from cheney's secret energy meeting) which initially destabilized the oil futures markets, and then the bush/cheney llegal invasion of the mideast which further destablized the oil markets.
make exxon mobil pay for the auto bailout!
Sounds good to me!
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