Gas Too High? Blame ExxonMobil?
Really, blame ExxonMobil? Are they and other big oil companies really responsible for rising oil prices? My car gets just under 20 MPG in the city and I sure don’t like putting $70 in every week but the world supply and demand of oil is much more responsible than any of our U.S. based oil companies for the rising price of crude oil and the resulting gasoline pump prices of over $4 per gallon. The fact is that 75% of our U.S. oil supply is imported from other countries. The evidence of “Big Oil” not being responsible for rising crude can be easily seen in their income statements.
In a very cursory analysis of ExxonMobil’s (EOM) income statement, you’ll see that gross margins (gross profit divided by revenue) went up only slightly since 2003 while a barrel of oil has skyrocketed from $32 to over $100. This is because refined gasoline has a cost-based price, that is, a retail price that works as a function of the input costs – raw materials, processing and labor multiplied by some factor. As you can see from EOM’s income statement, roughly the cost of petroleum-based products are about 80% of the wholesale price. This has remained mostly constant while the raw cost of crude oil has more than tripled.
Many in Washington want to simply place a “windfall tax” on these companies. This is a nice excuse to raise corporate taxes across the board, while U.S. corporations pay the second highest marginal rate in the world, with only Japan paying more. Notice the taxes paid by ExxonMobil. What is it about a 42% effective tax rate that seems low to you? What is it about having the highest corporate tax rate in the world that will make us more competitive worldwide?
We need to lessen our dependence on foreign oil by producing more oil supply here and by inventingenergy alternatives to oil. That requires a multi-pronged approach, including exploration right here at home. Hey McCain and Obama, how about using a little diplomacy here at home by visiting U.S. corporations like EOM who, at >$100 per barrel oil, have the answers and the incentive to make alternatives a reality.
kendall,
you hit exactly on one of things that frustrated me about the debate. McCain and Obama had widely varying takes on the real corporate tax rate in the U.S. From my standpoint is doesn’t make a whole lotta sense to criple the job creation engine, especially right now.
Nice piece Kendall. Even a person like, me, who leans toward the Democratic party for social issues, understand that corporate taxes have an adverse effect on the economy. Your piece makes it very evident that EOM is indeed paying more than their share to the government.