A Bit More on Profits

By February 27, 2008General

The Supreme Court considers oral arguments today in the case of Exxon Shipping Co. v. Baker, with the issue being whether the $2.5 billion in punitive damages levied against the company for the 1989 Exxon Valdez oil spill is excessive. The NAM has filed an amicus brief in the case, which, among other things, questions whether such a huge, disproportionate punishment — on top of more than $3.4 billion Exxon has already spent in penalties, claims, clean-up, etc. — serves a legitimate deterrent factor. (The NAM news release and brief are available here.)

The counterargument is that it’s not that big of a settlement considering Exxon’s huge, huge profits. Local fisherman Andrew Wills says: “We lost everything, but they’ve seen record profits.” We appreciate the pain and dislocation, but the accident was an ACCIDENT — and certainly not caused by the desire to maximize profits. It’s been extremely costly for Exxon.

And again, we question this mindset that profits are bad or worthy of suspicion. By a scheduling coincidence (it IS a coincidence, right?) the House today considers H.R. 5351, the Renewable Energy and Energy Conservation Tax Act, which would raise taxes on oil and natural gas production by $18 billion. Debates of this sort invite a flood of anti-oil-company, anti-profit populism. “Oil companies make too much money! We must punish them!”

A recent paper by the Heritage Foundation on the House tax plan provides some context:

The suggestion that the domestic oil and gas sector is currently undertaxed may be a popular sound byte, but it is not supported by the evidence. By many measures, energy companies face tax rates comparable to, or higher than, those of other industrial sectors. For example, the average effective tax rate for major integrated oil and natural gas companies is actually higher then the average rate of 32.3 percent for the market as a whole, according to the Tax Foundation.

Also, record profits for oil companies have been accompanied by record tax bills. According to the Energy Information Administration, gross revenues from the 27 biggest energy companies hit a record high of $220 billion in 2006 (the most recent information available), well above the $188 billion in 2005 and $129 billion in 2004. But total income taxes also rose to a record high of $81 billion in 2006, compared to $67 billion in 2005 and $45 billion in 2004. This effective tax rate of 37 percent in 2006 is in line with (and actually a bit higher than) large corporations in general.

Those are facts and figures, we know, not an emotionally satisfying response to those Alaskans angered by a disrupted life or motorists ticked at $3.39 a gallon gas.

But our elected representatives — or if not them, at least our Supreme Court — should be able to base decisions on something more than populist passions and anti-wealth anger. Right?

Join the discussion One Comment

  • So, according to this article corporations should not be held accountable for their actions? Before the pipeline was even built there were proposed regs for escort vessels, double hulled tankers, and pilots thru the Sound. Added expense the oil companies that unfairly cut profits. Who is responsible? Exxon knew the Valdez was skippered by an alcoholic who had been drinking, couldn’t even legally operate an automobile, and for 20 minutes after the grounding tried to back the ship off the reef which would have resulted in a total loss of the ship and cargo. Over 33,000 people who are also businessmen had their lives change overnight. The compensation has not come close to losses. If not justice we’re left with anarchy and revolution. How does that affect profits?

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