[Mb-civic] Tax the Windfall - Michael Kinsley - Washington Post Op-Ed

[William Swiggard]

Tax the Windfall
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By Michael Kinsley
The Washington Post
Friday, April 28, 2006; A19

In, I guess, the early 1990s, when I worked for CNN, I found myself one 
evening at a Washington reception, chatting with an oil company 
executive and one from a defense contractor. The oilman said, "How's 
business?" How's business! Delighted and emboldened by the discovery 
that businessmen actually say this to one another, I arched a 
conspiratorial eyebrow and said, "Well, we could use another war."

The defense contractor said, "So could we."

The oilman said, "So could we -- as long as it's in the Middle East."

I was joking, and I'm pretty sure the other two were as well. Corporate 
executives are human beings (except for Ken Lay). They profit from war, 
but that doesn't mean they want it. Well, maybe a few of them have mixed 
feelings about that. But until I see hard evidence, I am not going to 
believe that American business executives would induce the government to 
start a war, even if they had the power to do so.

These days even President Bush is dissing the oil companies. He doesn't 
accuse them of starting the Iraq war, of course, but he does now favor 
looking into other possible misdeeds, such as antitrust violations. For 
Republican Sen. Arlen Specter and a chorus of Democrats, oil company 
misdeeds are enough to justify a tax on their "excess profits."

This hunt for a smoking gun misses the point. Taxes are not a form of 
punishment. And you don't need to find wrongdoing to justify a special 
tax on their profits. You only need a pocket calculator -- to figure out 
how much they owe.

The math is rough, but it's not complicated. About a third of the oil 
consumed in the United States comes from wells in the United States. 
That's about 150 million barrels a month. The oil industry refers to 
this as "production," but a more accurate term would be "extraction." 
Nature produced the oil and charges nothing for it.

Oil is oil, no matter where it comes from, so the price of those 150 
million barrels will go up and down with the price of the 300 million or 
so barrels we import every month. A year ago, that price was about $46 a 
barrel. Now it's over $70 a barrel. The cost of extracting those 150 
million American barrels depends a lot on how you figure and varies well 
by well. But we can make a few reasonable simplifying assumptions. 
First, no one was forced to pump oil at gunpoint a year ago. So, however 
you figure, in April 2005 it must have been possible to extract 150 
million barrels of oil from American ground for less than $46 a barrel, 
including a reasonable profit.

Costs change: Wells have to be pumped harder, or they run dry. 
Gradually, we are running out of oil and need to import more and more. 
But these changes are nothing like the fluctuations in the price that 
oil can be sold for. If 150 million barrels could be extracted a year 
ago for $46 a barrel, it shouldn't cost much more than that to extract 
another 150 million barrels in 2006.

Let's round a bit and say that American oil extractors are getting an 
extra $25 a barrel. For 150 million barrels a month, that's $45 billion 
a year. And that's just for the oil that's extracted. The oil that 
remains in the ground also is about $25 a barrel more valuable. Other 
energy resources, used and unused, are more valuable by a similar amount.

To get this windfall, the oil companies didn't have to conspire with the 
Bush administration to start a war in Iraq. They didn't have to conspire 
among themselves to raise prices at the pump. If you own oil anywhere in 
the world, you didn't have to do a damn thing. Just close your eyes, 
make a wish, open them and -- surprise -- you're getting an extra $25 a 
barrel.

Ordinarily, and wisely, the U.S. government doesn't try to guess what is 
or is not a reasonable profit, and it doesn't try to tax away profit 
that is unreasonable. As a general principle, the government tries to 
tax all business profits at a rate that will produce enough revenue to 
help cover the cost of government without unduly destroying the 
incentive to produce. Under Republican administrations, the government 
usually goes further and gives business a bunch of absurd tax breaks. 
The oil industry has been a special pet over the years.

Ordinarily, we shouldn't want the government to decide when profits 
become "excess." But the case of huge profits from the run-up in oil 
prices is different, for two reasons. First, it is unusually clear that 
these profits have nothing to do with productivity. Diverting them to 
the Treasury would have no effect on the incentive to extract more oil 
from American ground. Second, some or all of these profits are directly 
related to a situation that is imposing huge sacrifices -- financial and 
otherwise -- on others: that is, the Iraq war.

Because of the war, the government is adding hundreds of billions to the 
burden of debt that all taxpayers, including other businesses, will have 
to pay off. Because of the war, American soldiers by the hundreds, and 
Iraqis by the thousands, are paying the ultimate tax of death by 
government policy. And because of the war, American oil companies are 
raking in extra billions in profits.

The oil companies, like other big corporations, are mostly owned by 
ordinary citizens, either directly or through mutual and retirement 
funds. Presumably some of them support the war and others don't. Do any 
of these shareholders, pro-war or antiwar, want to pocket $45 billion 
(or whatever number you choose) from a war that is costing others so much?

http://www.washingtonpost.com/wp-dyn/content/article/2006/04/27/AR2006042702122.html
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