As Congress rakes oil executives over the coals over their profits, I detect the very faint sound of millions of the world's smallest violins playing. After all, who is in the mood to feel sorry for oil company executives, given the pain we all feel when we fill up at the pump? No politician has ever been hurt by going after the big profits of oil companies, and it is unlikely that any ever will.
The truth is that oil companies have a lot less control over their profits than most of us think. The main component in the price of gasoline is the world price of crude oil, which has skyrocketed in recent years. And however large the profit numbers appear to us, the oil companies' return on investment is small compared to banking, making computer chips, or even bottling Coca Cola.
According to the California Energy Commission, which breaks down the components of a price of gasoline, only six cents of the price of a gallon of gasoline went for distribution costs, marketing costs, and profits for the oil companies. That is six cents out of $3.61 cents at the pump. Sixty-three cents, or ten times as much, went directly into government coffers as state and federal taxes. And that doesn't include the income taxes the oil companies paid.
Exxon Mobil, whose profits have earned the ire of Congress, paid $27,000,000 in income taxes on those profits in 2007. That is actually more than all the income taxes paid by the bottom 50% of taxpayers. Exxon Mobil alone paid more in taxes than 65,000,000 individual taxpayers paid as a group. Of course in reality it wasn't the oil companies who paid that tax, but you and I every time we fill up at the pump. Government makes more money off the oil companies than the shareholders do.
So however satisfying it may be to watch oil executives squirm under the tough questioning of Congressmen, the hard fact is that Congress is partly responsible for rising energy prices. Congressional grandstanding is so galling because their own policies are hurting the very consumers they pretend to champion.
Congress does everything it can to drive up the cost of energy every day. Energy companies are among the most highly taxed in the country. Billions of barrels of oil reserves are kept off limits to drilling. It is nearly impossible to build an oil refinery in the United States, meaning that the United States no longer just imports crude oil, but even refined oil products such as gasoline.
But all of these factors will pale in comparison to the next wave of taxes and regulations that will drive up the price of energy in the coming years.
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