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.
In response to fears about global warming or "climate change" the Congress will soon begin debate about the Lieberman-Warner Climate Security Act, the main consequence of which is to raise the price of most of the energy you consume. The higher energy prices envisioned by the Act are intended to get consumers and manufacturers to cut back on energy consumption and reduce greenhouse gas emissions. Observers give the bill a 90% chance of passage by next year.
According to a study done by the American Council for Capital Formation and the National Association of Manufacturers, the Climate Security Act could raise retail prices for gasoline by 77%-145%, natural gas prices by 108% to 146%, and electricity prices by 101% to 129% by 2030. These price increases won't just hurt consumers directly, but will drive economic growth down as well. By 2030 the economy could be 8.3% to 8.5% smaller than if this bill didn't pass.
That's the equivalent of a pretty severe recession. One much more severe than the current economic problems we face today-and one that won't end until energy prices are allowed to fall.
How much chutzpa does it take for Congress to bash oil companies for energy price increases mostly outside their control at the same time they are working feverishly to raise the cost of energy through laws and regulations?
Energy is the lifeblood of a modern economy, and the only current sources of energy that can feed that economy today are fossil fuels, which emit carbon dioxide when used. And while it makes sense to research and develop renewable fuels, creating and implementing viable alternatives will take decades. Until then, lower greenhouse gas emissions will only come from lower energy use.
Congress should admit that that their policies have and will raise the price of energy. Instead, they are making energy companies the whipping boy for the consequences of their own policy decisions.
Congressmen are pretending to be the sheriff riding to the rescue of consumers, but in reality they are the chief bandits who are shaking us all down.