“The American people will never knowingly adopt Socialism. But under the name of ‘liberalism’ they will adopt every fragment of the Socialist program, until one day America will be a Socialist nation, without knowing how it happened.”

Socialist Party presidential candidate Norman Thomas

Wednesday, April 02, 2008

Reader Mail

With the heads of all the major oil companies on the hot seat this week in Washington being forced to explain their "obscene" profits, alert reader freedom2learn wrote in with this question:

"What about corporate greed? Oil companies get billions in tax breaks while making record profits. That doesn't sound right."

Record profits, yes, but profit margin is the real measure of corporate money making. Let me explain:

Point1: Profit margin is best explained this way; Let's say that you're selling a gallon of gas for $5 and you're making a 10% profit. Your profit is $.50. Your profit margin is 10%. Now let's say that your costs go up by $1 a gallon. What do you do in order to keep making money? You increase the price at the gas station. Now you are selling for $6. Your costs are $5/gallon, so you're making $1.00 on every sale. Your profit has doubled to $1 per gallon, but your profit margin is still 10%. You're still making the same profit on every dollar that you invest in your business, but your profits have doubled! This is the term craven politicians love to demagogue....profit. They know they're lying to you but they also know that after years of "educating" Americans in dreadfully hideous government schools, we won't know the difference between profit and profit margin, and want badly for somebody to blame for prices of everything rising.

Let's take a look at oil company profit margins:

Exxon Mobile: 11.65%
Chevron: 9.49%
BP: 8.09%

BP makes only 8.09cents for every dollar of sales. The federal government makes 19cents on the dollar in my state and more in others. Who is screwing the people, BP or our own government?

By contrast, here are some companies with high profit margins:

Diana Shipping (dry bulk): 54.28%
US Bank (banking): 36.26%

Why then, do the democrats go after "big oil"? Shouldn't they go after "big banking" or "big shipping" instead? Because oil companies are easy targets to demonize, that's why.

Point 2: Oil company tax-breaks are a myth for the most part. The total taxes paid to the US government by Exxon/Mobile in Q3 of 2007 equalled $26.24 billion. Guess how much they made, net, in the third quarter? $10.49 billion. Which means they paid about 2.5 times more in taxes than they made in profit. So who benefits the most from the high price of gasoline or in other words, who's robbing the average American blind at the pump? The federal government is. And they have the balls to drag oil execs to congressional hearings to explain themselves.....unbelievable! Imagine how cheap gas would be if the federal government suspended the taxes it seizes for one year.

Point 3: Exxon/Mobile paid more in taxes to the federal government last year than the entire bottom 50% of wage earners in the US. That's right. And I can't figure out which is more egregiously unfair, that the bottom 50% pay so little in taxes, or that the federal government seized that much from a single private company.

Point 4: Oil companies have such high revenue because they have such high volume in sales, not high profit margin. If you sold a trillion gumballs each at 1cent profit, you'd have more profit than somebody who sold 1000staplers at 10cents profit.

Finally, not a single company, ever, anywhere on Earth was begun for any reason other than to make as much money as possible for it's stock-holders. Companies don't exist, as democrats want you to believe, to provide jobs, healthcare, or retirement funds for lazy, handout union members. Nor do oil companies exist to provide Americans with cheap fuel any more than Dunkin-Doughnuts exists to provide Americans with hot coffee and delicious frosted pastries. They exist to make money. It is their only responsibility.
If it wasn't for "corporate greed", where would your 401K be? Your mutual fund? The college funds for your kids? Your retirement fund? All these things depend on companies making as much money as they can.


Robert Underwood said...

Ed: Point #1: Gas selling at $5/gal w/ a $.50 profit, it is 10%. If costs go up $1 then cost is $5.50/gal. If profits increase to $1 , with that change (and cost didn't rise, just selling price), then profits are 18% appx. If profits remain at 10% then the station owner makes $.55/gal. I can't follow the math here in your example. Help me. I am not trying to nit pick, just to get the math in mind si I acn see the argument.

Ed said...

You are correct Robert. I screwed up the math....which explains how I ended up in the biological sciences and not engineering. I'll correct it as soon as I can and leave the correct example here in this thread.