Windfall Profit Tax and Dummies

I have a lot of hippie-liberal friends. They’re okay, but they’re a bit dogmatic. That would be fine; but, they’re a bit stupid about it. The thing that as been driving me crazy is the liberals going around clamoring for a ‘windfall profit tax.’ Whenever I hear someone talking about this panacea of American economic woes, all I hear is ‘I’m stupid.’

Why am I so down on the Windfall Profit Tax? Am I just a Right-Wing Nut Job? Am I a shill for Big Oil? Do I like to see the little man get crushed? (Okay, okay, okay, I do like to see the little man get crushed, but the others are false) No, it is just that I see through this deceptive tripe.

The argument for the Windfall Profit Tax on Big Oil is flawed. It presumes that the level of profit the Big Oil companies are making is excessive. The argument goes like this: Exxon-Mobil made $43.6 billion in profit over the last four quarters. On the face of it, this seems like a huge amount… hell, that is more than the GDP of most of the countries on earth. I argue that, that amount of profit is not a ‘windfall’; but, rather, the right amount of profit for Exxon-Mobil to be making. I took the time to look up the Revenue and the Net Income of Exxon-Mobile and 27 other name companies. Exxon-Mobile had $473.9B in revenue and $43.6B in net income, for a profit margin of 9.2%. For all 28 companies, the total revenue was $2.523 trillion with net income of $247.7 billion, for a profit margin of 9.8%. I argue that Exxon-Mobile isn’t any more profitable than these successful, name companies; it is just that the cost of their raw materials (namely, oil) has gone up tremendously over the past few years and they have raised prices to keep their profit margins inline.

Now, there will be some idiots out there that will have the counter argument of: why don’t they lower their profit margins so gas is cheaper and the common man would be hurt as much by the rising cost of oil? This argument has all of the trappings of Leftist quackery: it almost sounds logical, it is populist, and it is, in the end, suicidal. If a company lowered its profit margin, the company’s investors would pull their capital out of the company. It would be similar if you or I made 9% on a Government Bond we bought for $10,000; but when we bought $100,000,000 worth of bonds, the Government came back and said something like this: Well, you were happy with your $900 before, and we don’t want to pay you $9,000,000; so we are going to tax your interest on your $100,000,000 until you just have $900 left. How would you feel about the Government turning you 9% investment into a 0 .001% investment?

So, the next time you hear a liberal talking about a ‘Windfall Profit Tax’, point at them and call them stupid. It only takes a little bit of time and effort to see through the silliness.

Below are the companies I looked up, their revenue numbers, and their profit margin. All data was attained by looking at their Income Statements on Yahoo Financial. Profit Margin is defined as Net Income / Gross Revenue. I used the last four available quarters to come up with the annual numbers. (Click on 'photo' to enlarge and see the data)