The Homa Files

Excerpted from a WSJ editorial, Aug4, 2008

The “windfall profits” tax is back …  What is a “windfall” profit anyway? How does it differ from your everyday, run of the mill profit? Is it some absolute number, a matter of return on equity or sales — or does it merely depend on who earns it?

Senator Obama says government would take “a reasonable share” of oil company profits …  Senator Durbin says “The oil companies need to know that there is a limit on how much profit they can take in this economy.”

Take Exxon Mobil, which … is the main target of any “windfall” tax surcharge …   Between 2003 and 2007, Exxon paid $64.7 billion in U.S. taxes, exceeding its after-tax U.S. earnings by more than $19 billion.

Exxon’s profit margin stood at 10% for 2007, which is hardly out of line with …  the 8.9% for U.S. manufacturing (excluding the sputtering auto makers) … Chemicals had an average margin of 12.7%. Computers: 13.7%. Electronics and appliances: 14.5%. Pharmaceuticals (18.4%) and beverages and tobacco (19.1%)

If Senator Obama is as exercised about “outrageous” profits as he says he is, he might also have to turn on a few liberal darlings. Oh, say, Berkshire Hathaway. Warren Buffett’s outfit pulled in $11 billion last year, up 29% from 2006. Its profit margin — if that’s the relevant figure — was 11.47%, which beats out the American oil majors.

Or consider Google, which earned a mere $4.2 billion but at a whopping 25.3% margin. Google earns far more from each of its sales dollars than does Exxon, but why doesn’t Mr. Obama consider its advertising-search windfall worthy of special taxation?

The point is that what constitutes an abnormal profit is entirely arbitrary. It is in the eye of the political beholder …  a windfall is nothing more than a profit earned by a business that some politician dislikes. 

* * * * *

Full editorial (worth reading):
http://online.wsj.com/article/SB121780636275808495.html?mod=opinion_main_review_and_outlooks

** * * * *

For hard numbers, see prior post:
https://kenhoma.wordpress.com/2008/06/26/numbers-price-gouging-windfall-profits/

* * * * *

Want more from the Homa Files?
 Click link =>  The Homa Files Blog

* * * * *

This entry was posted on August 4, 2008 at 7:06 am and is filed under Government & Politics, Oil & Energy, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.