Friday, July 28, 2006

Wal, wal, wal.
The oil companies have announced their income/earnings for the second quarter of 2006 and, it’s deja vu one mo time.
They made a lot of money.
The socialist-liberals in Congress are making noises about a “windfall profits” tax again.
They claim this is to “help” the American consumer.

So let’s go back to Economics 101 for a refresher on a few timeless principles.

All businesses get their income from their customers.
All businesses pay their taxes from the income they get from their customers.
If Congress raises the taxes that certain businesses must pay, guess who is going to foot the bill for the increased taxes?
Their customers.
In the case of the oil companies, that would be yoo (and mee).

What an extra tax on profits says is that being successful is bad.
Profit is evil.
This is just another case of wealth envy on the part of the socialist-liberals.
You say “income” – they think “tax”.

But this is America!
The land of the free and home of the brave and apple pie and free enterprise.
The land of opportunity, where we demonstrate that if you work hard, you can make money and improve your material situation.
Maybe even get “rich”.
One definition of “rich” is to have/posses more than you need for basic survival.
Know anyone like that?
(Check your local mirror.)

So how much profit is enough to be “windfall”?
Is it just total dollars of profit?
Is it percent of profit on total sales? (“profit margin”)

If you look at just total dollars of profit, the oil companies made A LOT of money.

Royal Dutch Shell
Revenue $ 83,127,000,000.00
Profit $ 6,314,000,000.00
Profit Margin 7.60%

Conoco Phillips
Revenue $ 47,100,000,000.00
Profit $ 5,186,000,000.00
Profit Margin 11.01%

Exxon Mobil
Revenue $ 99,000,000,000.00
Profit $ 10,400,000,000.00
Profit Margin 10.51%

BP
Revenue $ 74,007,000,000.00
Profit $ 7,266,000,000.00
Profit Margin 9.82%

Chevron
Revenue $ 53,500,000,000.00
Profit $ 4,350,000,000.00
Profit Margin 8.13%

So lets look at some other companies who reported earnings this week.

Intel
Revenue $ 8,940,000,000.00
Profit $ 1,347,000,000.00
Profit Margin 15.07%

Microsoft
Revenue $ 11,800,000,000.00
Profit $ 2,830,000,000.00
Profit Margin 23.98%

Merck
Revenue $ 5,800,000,000.00
Profit $ 1,499,300,000.00
Profit Margin 25.85%

Glaxsosmithkline
Revenue $ 10,634,000,000.00
Profit $ 3,508,000,000.00
Profit Margin 32.99%

Citibank
Revenue $ 22,182,000,000.00
Profit $ 5,262,000,000.00
Profit Margin 23.72%

Morgan stanley
Revenue $ 17,400,000,000.00
Profit $ 3,518,000,000.00
Profit Margin 20.22%

Notice the last column – Profit margin.
These companies made from 50% to 300% MORE profit than the oil companies if you measure profit as a percentage of total sales.

Consider this, Microsoft has 34 BILLION dollars in cash in the bank (actually it is invested in short-term bonds).
This is extra money they accumulated over the years that they don’t know what to do with.
Nice problem to have.
Two years ago they decided to pay a dividend to all of their shareholders.
Before they did that, they had 66 billion in the bank. (!)
Life is the pits.

Oh, and guess what?
Guess who made more money than the oil companies on this expensive oil?
Your federal and state governments.
From taxes on gas and oil.
You paid for that, too.
Sorry.

One reason oil prices are so high is because there is more demand for oil in relation to the amount of available oil.
Key word: available.
Much of the profits of oil companies goes into looking for – duh! – more oil.
Shazaam!
But most socialist-liberals in the US Congress oppose drilling for oil off the coast of Florida and in the Arctic National Wildlife Reserve (ANWR) , in Alaska, where there are known (as in – already discovered) large reservoirs of oil.
The reason for refusal to drill in ANWR is that if any oil is spilled, it might pollute the ground and harm an animal.
(Even though the area where the drilling would take place represents just 2% of the total ANWR real estate.)
So, based on the actions of the socialist-liberals, a few animals are more important than providing more oil to the millions of American citizens who need it.

So, the socialist-liberals gripe that oil prices are too high.
The socialist-liberals gripe that the oil companies make too much money.
But the socialist-liberals refuse to allow the oil companies to pump new oil out of the two biggest repositories in the United States, which would increase supply and thus lower the price of oil in the US of A.
Go figure.

Class dismissed.

3 comments:

Vanessa said...

I take it that you like/ed Economics 101?!!

Paw said...

Yes, I enjoy economics.
Learn a few principles and you can understand why a whole bunch of things are the way they are.

J. No said...

I enjoyed today's lecture. Probably because I agreed with it.