What Is a 'Windfall' Profit?

From The Wall Street Journal:

The "windfall profits" tax is back, with Barack Obama stumping again to apply it to a handful of big oil companies. Which raises a few questions: 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?

Enquiring entrepreneurs want to know. Unfortunately, Mr. Obama's "emergency" plan, announced on Friday, doesn't offer any clarity. To pay for "stimulus" checks of $1,000 for families and $500 for individuals, the Senator says government would take "a reasonable share" of oil company profits.


Mr. Obama didn't bother to define "reasonable," and neither did Dick Durbin, the second-ranking Senate Democrat, when he recently declared that "The oil companies need to know that there is a limit on how much profit they can take in this economy." Really? This extraordinary redefinition of free-market success could use some parsing.

Take Exxon Mobil, which on Thursday reported the highest quarterly profit ever and is the main target of any "windfall" tax surcharge. Yet if its profits are at record highs, its tax bills are already at record highs too. 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. That sounds like a government windfall to us, but perhaps we're missing some Obama-Durbin business subtlety.

Maybe they have in mind profit margins as a percentage of sales. Yet by that standard Exxon's profits don't seem so large. Exxon's profit margin stood at 10% for 2007, which is hardly out of line with the oil and gas industry average of 8.3%, or the 8.9% for U.S. manufacturing (excluding the sputtering auto makers).

If that's what constitutes windfall profits, most of corporate America would qualify. Take aerospace or machinery -- both 8.2% in 2007. 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%) round out the Census Bureau's industry rankings. The latter two double the returns of Big Oil, though of course government has already became a tacit shareholder in Big Tobacco through the various legal settlements that guarantee a revenue stream for years to come...

The point is that what constitutes an abnormal profit is entirely arbitrary. It is in the eye of the political beholder, who is usually looking to soak some unpopular business. In other words, a windfall is nothing more than a profit earned by a business that some politician dislikes. And a tax on that profit is merely a form of politically motivated expropriation.

It's what politicians do in Venezuela, not in a free country.

Another Oil Company Show Trial

It's becoming clear that Democrats are hellbent on destroying the US economy with their latest round of demagoguery, as they once again call oil execs on the carpet while doing absolutely nothing but stand in the way of increased domestic production. This is all to divert blame from themselves and appease their kook base with anti-free enterprise rhetoric

"Where is the corporate conscience?" Sen. Dick Durbin, D-Ill., asked the top executives of the five largest U.S. oil companies.

How does this jerk walk around with those big brass ones clanging around? Where is his conscience in refusing to allow more drilling and exploration within our own borders while mandating that we burn 25% of our corn. By now Durbin and his cronies must know the difference between profit and profit margin, but they pretend they don't. It's more important to score points with the economic morons back home than think about the country's security and future. What's going on here is nothing less than criminal malfeasance.

Speaking of crimes, National Review makes the point that congress is violating the very law it passed last week whereby they are trying to criminalize OPEC. That law, which I'm sure has been the source of much amusement in Ryadh, says in part:

"It shall be illegal and a violation of this Act . . . to limit the production or
distribution of oil, natural gas, or any other petroleum product . . . or to
otherwise take any action in restraint of trade for oil, natural gas, or any
petroleum product when such action, combination, or collective action has a
direct, substantial, and reasonably foreseeable effect on the market, supply,
price, or distribution of oil, natural gas, or other petroleum product in the
United States."

That's exactly what congress is doing right now.