This morning I listened to a radio show where they were debating an "excess profit" tax on oil companies and esp. Exxon Mobil. The argument seemed to be that gasoline was too expensive so the oil companies should get punished.
I e-mailed my response -
" The margins of the oil companies are not excessively high. Exxon Mobil makes a lot of profit because it is such a large company, but without excessive margins it is unreasonable to consider the profit excessive and tax it away. You wondered if the profit figures were accurate. I don't think you need to worry about that. Exxon-Mobil is not Enron. It doesn't have all the numerous obscure joint ventures that Enron had to hide its real costs. Also the executives make more money if the profit is seen as high. If Exxon-Mobil or any other companies tried to fraudulently report their profits they would most likely report the profits and margins as higher than they really are not lower, so that the executives could get a bonus, or so that the stock options they have would become more valuable. Certainly the execs would not want to risk scandal, loss of employment, and possible prison terms in order to lower the value of their stock options.
Also if you where to create an "excess profit" tax for oil companies it wouldn't cause prices at the pump to go down. Extra taxes would only put upward pressure on prices.
More generally price caps whether direct, or in direct (taxing companies more if prices are high) almost always have negative results. The price is a response to market forces of supply and demand. If you want to change the price you have to increase supply or decrease demand. If you try to cap the price you create shortages. If the price is not high enough to effectively ration a good than you ration the good by other methods. Either people wait in line (and those at the end of the line don't get the good, in this case gasoline), or the good goes to people with connections and those without have less or none, or perhaps people have to pay bribes to get goods, or they buy it at a high price from black market operators. Almost any attempt to control prices or control profits will do more harm than good. |
