Business: Congress isn’t passing gas (companies)

By Jeffrey Lipsey

When the oil industry reported record third-quarter profits with the high gas prices, I was a little surprised. I was not the only person surprised, however, as executives of the five largest oil companies appeared before the Senate Energy and Commerce committees to defend the 62 percent jump in third-quarter profits yesterday.

This year, gasoline prices surged 20 percent and consumers will face a 50 percent jump or more in home heating bills this winter, according to Generally, the executives are defending their profits. They state that profits are volatile over the short-term and that as a percentage of revenue, their profits have remained constant when compared to other industries.

A lot of people get angry at the rise in gas prices, and blaming it all on the oil companies is rather hasty. Granted, oil companies could decrease their profit margins to control prices, but unless we allowed them to increase their margins, it wouldn’t be fair to the industry.

Taxes make up over 30 percent of gas prices while the price of oil itself encompasses only 45 percent of the gas price, according to Other factors that determine the price of oil, such as a decrease in the supply or an increase in demand for crude oil, will increase prices.

Frankly, neither I, nor anyone else, can tell you if the oil companies intentionally gouged prices, but I seriously doubt they did. Gasoline and oil futures are traded over the open market and any price fixing is unrealistic. I don’t believe the Senate can do anything to solve this issue, which is why they should stay out of this matter. During this debate, some Senators are proposing a 50 percent tax on windfall profits to negate the record profits of the previous quarter.

However, I believe this tax will do much more harm than good, just like it did in the 1980s. If a windfall tax was in place, only U.S. oil companies would be affected because there is no way to tax the excess earnings on foreign oil. Thus, U.S. companies would have a competitive disadvantage when compared to foreign firms. Unless we were to give a rebate to the oil companies during any less than stellar quarters, this tax would also not be fair and would only result in another step towards regulation. By taxing domestic oil companies, the Senate will only increase the dependence on foreign oil, which is something we need to reduce.

In regards to decreasing gasoline prices, only a few methods exist that are currently feasible. We must first decrease our dependence on foreign oil. We can do that in several ways, the most apparent of which are increasing the supply of domestic oil (increase drilling), or the more popular option of alternative energy methods.

Something must be done, and I don’t think a windfall tax is the most optimal method of decreasing gasoline prices and could very well have the exact opposite effect.

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Jeffrey Lipsey is a senior in Business. His column appears on Thursday. He can be reached at [email protected]