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Oil companies want to make as much money as possible, and this is not necessarily a bad thing.
Our economy works best when everyone is free to make as much profit as their skills, intelligence and resources will allow them, as long as it is done fairly.
So why do Democrats want to punish oil companies for living out one of the greatest American ideals?
Exxon Mobil posted a quarterly profit of nearly $12 billion in July — the largest in history for a corporation — according to a New York Times article on Aug. 1. With Americans still paying relatively high gas prices and the U.S. economy struggling, it's easy to see why some would feel action is necessary.
But over the same period, Exxon also paid more than $10 billion in income taxes — a rate of about 49 percent — and spent more than $115 billion to run its business.
On average, the largest oil companies make only about 9.7 percent more than they spend each year, slightly above average for an S&P 500 company. Many companies have much larger profit margins.
Google, for instance, operates with a profit margin of about 25 percent, according to CNN on April 29.
Yet Democrats, like presidential nominee Barack Obama, want to impose even higher taxes on the oil companies. Obama has called for a $65 billion windfall profits tax on the largest oil companies and wants to redistribute the resulting funds in the form of a $1,000 rebate check to families.
Obama's plan is a bad idea on many levels. First, additional taxes on oil companies inevitably will result in higher gas prices, as companies will have less to spend on new production.
Second, one-time rebate checks rarely have the intended effect. Consumers usually save the money or use it to pay off debts. For example, earlier this year, the government sent out nearly $80 billion in rebate checks in hopes of economic stimulus, but less than $20 billion of that went into the economy as consumer spending, according to CNN on Aug. 6.
Adding new taxes on oil companies essentially is punishing them for making money. But basic economics tells us they should make money. They produce a commodity that is of limited supply and in high demand.
Why penalize a company that is willing to invest hundreds of billions of dollars to bring us energy?
Blaming oil companies for high gas prices is like blaming farmers for high food prices.
When you go to the store and buy a gallon of milk or a loaf of bread you don't think, "Those farmers are ripping me off! They sit back in their smoke-filled rooms and decide how much the little guy is going to pay for food. The government needs to crack down on Big Farm and give some of their money to me."
Oil is a commodity, bought and sold on the open market like wheat, copper and coal. If oil companies have such a huge influence on price, why did they suddenly decide to start making more money this summer?
It is true the oil market isn't a completely free one. The OPEC cartel accounts for about 35 percent of the world's production, giving them a disproportionate influence on the price of oil.
Venezuela, who has the largest oil reserves in the Western Hemisphere, nationalized its oil industry last year, and Russia has made moves toward this goal as well.
To combat this, the U.S. needs a comprehensive energy policy. A policy that opens up more land for domestic and offshore drilling, strengthens the dollar so we don't pay a premium for foreign oil, and invests in alternative sources of energy like coal, biofuels and nuclear.
But most of all, we need a plan that doesn't punish companies for making money.
Tim Hadachek is a junior in political science. Please send comments to opinion@spub.ksu.edu.
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