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« Back to Opinion & Analysis
Democrats Promote Windfall Oil Profit TaxesEditorial for the Houston Community Newspaper, Inc.
Steven F. Hotze, M.D.
May 15, 2008
Socialist rhetoric is flying high in the Clinton and Obama campaigns. "Let's impose a windfall profit tax on those evil, greedy oil companies." This proves they have no concept of business or the economic law of supply and demand.
Historically, oil prices have fluctuated dramatically based upon the world demand for oil. In a global economy where Third World nations are expanding there is an inevitable increase in the demand for energy, and oil is a cheap and reliable source.
The law of supply and demand is a basic concept. When there is an increased demand for a product or service in short supply, the price increases. As the demand for the product or service falls so will the price.
Put the price of gasoline in perspective. A 12 ounce Coca Cola costs 96 cents which is $9.24 per gallon, nearly three times the cost of gasoline. Coca Cola is basically colored sugar water. Gasoline must be refined from oil and the process is expensive. No one screams when Coke raises its prices. Yet when gasoline prices increase, the politicians start howling, even though we have relatively inexpensive gasoline compared to other countries. The price of gas is over $8 per gallon in Europe.
Coke earns 26.9% profit on its total income which means for every $100 it earns it keeps $26.90. The oil companies' profit margin is 8.73%, or $8.73 on every $100. Which business would you rather own?
Profit is the amount of money a company has after its expenses are deducted from the gross income generated from sales. Few politicians have any understanding about a profit and loss statement. If a company's expenses exceed its income it operates at a loss. Unless a company makes a profit, it will eventually go out of business and people lose their jobs.
Oil companies are publicly traded and their stock is owned by millions of Americans. Their profits are paid in dividends. Some profits are retained by the companies and are invested in exploration.
The federal government taxes corporations, including oil companies, an unbelievable 35% tax rate. This means it receives 35% of the profits. Even though it takes no risk and makes no investment, it receives the lion's share. It also taxes the dividends paid to the stockholders, up to 38%.
So the federal government takes nearly 70% of the profits earned by oil companies, not a bad return.
These taxes flood the government coffers. The socialist politicians use this largesse to establish bureaucracies and create entitlement programs which buy the votes of non producers.
Who is being gouged? The businesses and stockholders are.
The politicians are deceiving the public and undermining the productivity of the free enterprise system. The oil industry has created hundreds of thousands of jobs and has fueled the economy of Houston and Texas. The energy it has harnessed has enabled the United States to become the most productive and wealthiest nation in the world.
The Democrats and their policies need to be resoundingly defeated.
About Conservative Republicans of Texas
Steven F. Hotze, M.D. is president of Conservative Republicans of Texas and founder of Hotze Health & Wellness Center in Houston, Texas.
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