While news reports of ExxonMobil's $10 billion first quarter profit sound enormous, for a company the size of ExxonMobil, it's actually not so large a number. In fact, ExxonMobil's profit margins have been falling, which is why Wall Street was disappointed and ExxonMobil's stockprice fell.
But ExxonMobil's falling profit margins are still too much for Washington, it seems, where some Democrats think the company’s making too much.
Massachusetts Democrat Edward Markey said last week, “Big oil is spending their profits to prop up their stock price rather than on discovering and delivering alternatives to $4 gas.”
One “alternative” to $4-per-gallon gas is to increase the domestic supply. But Mr. Markey and most of his Democratic colleagues have opposed virtually all efforts to open up more domestic drilling. And since more than 80 percent of the oil reserves are owned and controlled by governments—including such countries as Venezuela, Iran and Russia—it isn’t clear how much private sector oil companies can do to increase the supply.
But because some Democrats, including both of the party’s presidential candidates, think oil companies are doing too well, they are dusting off one of former President Jimmy Carter’s worst policies: the windfall profits tax on oil companies.
The idea is that if oil companies are making too much money, the government should take some of it away.
Exactly how much is "too much" money is unclear. Normally, the greater the risk the greater the rewards (i.e., profits). And there is a lot of risk in the oil exploration business.
Of course, identifying the “appropriate” level of profits would be completely engulfed in politics, which means there is no chance Congress would get it right.
Worse yet, we have some history here: Carter’s disastrous 1980 windfall profits legislation.
As even the Washington Post noted at the time, the tax wasn’t a tax on oil company profits, but an excise tax on oil production. That raised the price of oil, compared to the price in foreign countries. So the U.S. bought more foreign oil and produced less domestic oil. Which means the U.S. government never got the predicted revenue, and foreign countries reaped a financial boom.
So the ghost of Jimmy Carter is haunting Washington once again, and it’s even scarier this time than it was the first.