A Fortune 40 company recently reported a 59 percent hike in its first-quarter 2006 net income. How extreme! Surely the GOP Congress’s new War on Profits will slash Time-Warner’s returns to “fairer” levels.
Actually, as congenital opportunists, Congress exhibits highly selective indignation about “excess” profits. Amid high gasoline prices, recent reports of “obscene” margins among U.S. oil companies have led Capitol Hill Republicans to flee their putative free-market principles more swiftly than jewel thieves escaping a pilfered vault. The House voted 389-34 on May 3 to criminalize oil-industry “price gouging” with $2 million fines for retailers, $150 million penalties for wholesalers, and two-year prison terms for “greedy” oil barons.
No doubt, petro-profits are huge. Consider ExxonMobil’s $8.4 billion first-quarter returns. Hefty? Sure, but so is its $89 billion in revenues for the first quarter of 2006. Almost any slice of a pie that size will be ample.
The key figure, therefore, is a company’s increase in profits as a share of revenue. That figure is 7 percent for ExxonMobil, Earth’s largest oil producer. For the 24 oil companies that have posted first-quarter earnings, profits are up an average of 8.4 percent, according to the American Petroleum Institute. The oil industry earned 8.5 cents on the dollar in 2005, just ahead of 7.7 percent average earnings across America’s industrial corporations.
Does this constitute price gouging?
If 8.5 percent profits are too high, according to our all-knowing GOP Congress, why not hammer Time-Warner? Surely, its huge year-on-year profits could yield more social justice if Congress mandated lower prices for Time-Warner’s cable-TV services, movie tickets, and Madonna CDs.
And, while we’re at it, what’s up with United Airlines? After ascending from bankruptcy, at last, United’s parent company, UAL, reported a first-quarter profit of $22.9 billion, mainly due to accounting adjustments. Still, this represents a $24 billion improvement over United’s $1.1 billion loss for the first quarter of 2005. Obscene? That’s pornographic! Where are my cheap plane tickets?
Largely overlooked in this controversy is the fact that these high profits don’t just fund CEO salaries and Gulfstream jets, although top executives usually are handsomely compensated. Profits also finance dividends that land in retirement funds and pension plans. Oil profits may fuel your golden years, today or tomorrow.
Profits last year also underwrote $115 billion in petroleum-industry research and development, including oil exploration (despite Washington’s anti-drilling and anti-refining restrictions), which could help lower gas prices. Time-Warner’s excellent offerings — digital telephony, video on demand, and Road Runner high-speed cable modems — are products of profit-financed R&D.
And remember, profits yield wages. USA Today’s Dennis Cauchon reported May 4 that Wyoming led America in inflation-adjusted personal-income growth, advancing 13.9 percent from 2000 to 2005. Its coal, natural gas, and oil companies helped enrich the bank accounts of Wyoming’s energy industry employees. This also occurred in the other top-five states, all of which enjoy employment above the national average: Montana, North Dakota, New Mexico, and West Virginia. The same politicians who whine about wage stagnation would applaud rising incomes in these states, were they not refined from black gold.
For his part, consider Uncle Sam’s “profit” from gasoline.
While an industry-average 8.5 percent profit on a $3 gallon of gas equals 25.5 cents, the 18.4 cent federal gas tax is in that ballpark. Add state and local levies, and the typical gallon includes 45 cents in taxes, roughly 15 percent of today’s price. Why don’t blockheaded congressional Republicans lead a crusade against government tax gouging at the pump?
Au contraire, Sen. Arlen Specter (R., Penn.) advocates a windfall-profits tax on oil companies, an idea as fresh as platform shoes. Of course, drivers most likely would not see the proceeds of such a tax through some federal refund mechanism. Instead, oil companies would raise prices to collect the tax, then Congress would blow those new revenues on overall spending, social programs, and bacon-flavored gifts for their sugar-daddies on K Street.
Specter’s big idea raises another question. If windfall profits merit taxes, should windfall losses yield tax cuts?
As the Republican Congress’s pro-market philosophy fades in the rear-view mirror, it now speeds toward true socialism: setting de facto limits on how much profit is too much profit.
I wonder how “The Star-Spangled Banner” sounds in Russian?
– New York commentator Deroy Murdock is a columnist with the Scripps Howard News Service and a senior fellow with the Atlas Economic Research Foundation in Arlington, Virginia.