Punishing Profitability

Presidential hopeful, Sen. Barack Obama has published his “Emergency Economic Plan.” Given the current perceived state of the US economy, this is neither surprising or unwarranted in and of itself. Sadly but still not surprisingly, as with many politicians published plans during an election cycle, Obama’s plan is more firmly based in pandering to the voters than to addressing the issues at hand.

Obama “Emergency Economic Plan” comes in two parts. The first part , which is the only one I can really speak to, is an “energy rebate” ($500 to individual workers, $1,000 to families) he would like to send out as soon as this upcoming fall. These “rebates” would be fully paid for with five years of a windfall profits tax on record oil company profits!

Obama describes this in his plan as “Forcing big oil companies to take a reasonable share of their record breaking windfall profits and use it to help struggling families with direct relief.”

OK, let’s start with what are Windfall Profits? They’re technically defined as “profits that occurs unexpectedly as a consequence of some event not controlled by those who profit from it.” So essentially Obama is saying that the US federal government should enact legislation to ensure that companies – at least certain companies – are forced to share their unexpected gains with the public at large.

Where does a profit margin become excessive? Below is a listing of the average profit margins for some of the major economic sectors in the US.

  • Beverages & Tobacco: 19.10%
  • Pharmaceuticals: 18.40%
  • Electronics & appliances: 14.50%
  • Computers: 13.70%
  • Chemicals: 12.70%
  • Manufacturing: 8.90%
  • Oil & Gas: 8.30%
  • Aerospace: 8.20%
  • Machinery: 8.20%

That’s right, Oil & Gas ranked 7 out of 9 by sector when it came to profit margins, and maintained profit margins of less than half of that maintained by Beverages & Tobacco and Pharmaceuticals. Yet, Obama and a bunch of other Democrats aren’t gunning for other sectors with larger profit margins and margins more sustainable over the course of years.

Why would Obama want to take money away from a sector of American industry that maintains less than a 10% profit margin during most years? Have the oil companies been engaging in profiteering or market manipulation? No.

Obama’s plan as published doesn’t even try to hide his intent or reasoning. He makes no claim that that “Big Oil” is engaged in profiteering or any other form of market manipulation. In his plan Obama even states that the oil companies committed no wrong, but had benefited from “changes in the price of oil because of factors like supplies in the Middle East, demand in Asia, and disruptions and distortions in the oil market.” So Obama isn’t for regulation of profits; he’s for commandeering profits from companies that experience good fortune in their business endeavors.

This idea sounds more like something that would be enacted into law in some socialist nation like Venezuela than the US. Oh wait – Venezuelan President Hugo Chavez did enact almost identical legislation in April of this year. Less than a month later House Democrats tried to get that law enacted here in the US, but were blocked in the Senate. Now Obama is giving it another shot – or at least acting like he is.

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2 Responses to “Punishing Profitability”

  1. MorningGlory Says:

    I love this post; it explains in such simple terms what I’ve been trying to tell folks but haven’t been able to. Thanks for such a cohesive summary.

  2. The Winds Have Shifted | Reflections From a Murky Pond Says:

    […] light crude – down from a high of $147 during last July – Obama has decided not to implement his windfall profits tax upon US oil […]

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