Since politics and finance sometimes mix,I occasionly have to talk about politics. I want to say immediately that I strongly dislike most politicians of both major parties equally. One reason for my disdain is that the usual result of when politics and finance mix is bad public policy. One of the main subjects in the ongoing presidential race is the cost of energy and the oil companies. Both Democratic contenders,Barrack Obama and Hillary Clinton,have come out in favor of a so-called windfall profits tax on oil companies. Does that make any sense?
Since I come from an investment background,I'm sure most people would think that I would definitively say no. Actually,I say yes and no both. I think that a windfall profits tax could be imposed,but as more of an incentive than a punishment. I do not think it would be fair to impose an across the board windfall profits tax on all the oil companies. The government would need to look at each oil company on an individual basis. The oil companies are as varied in their characteristics as people are. Below are some examples of the differences between two of the major oil companies,Chevron and ExxonMobil.
Chevron seems to be trying to actually be a decent corporate citizen. Not only are they actively investing in alternative energy technologies,but they are the pioneers among US companies in drilling in very deep waters offshore. They are drilling for oil in the waters of the Gulf which are already being drilled but at much deeper levels of 20,000+ feet. These wells are being drilled in extremely harsh conditions never seen before because of the intense heat from the Earth at those depths. This means that these wells will not only take years to develop but that they will cost many tens of billions of dollars for each well. If anything,the government should be thanking Chevron and lowering their taxes so that they can spend the money on developing these type of oil wells.
On the other hand,we have ExxonMobil. They are doing next to nothing as far as developing new alternative energy technologies. In fact,they recently came under intense criticism for this from the Rockefeller family. The Rockefeller family is,of course,the founding family on Exxon and they are still major shareholders. Exxon has also,for all intent and purposes,has shut down their exploration divison. Here is a major oil company and they are no longer actively searching for oil! When asked about this,Exxon executives spout some ridiculous story about how they think oil is going back to $35 per barrel and so they don't want to 'waste' money on exploring for more new sources of oil-it's not economically feasible. What the executives are really doing is living off of what their predecessors did and enriching themselves personally. If the government slapped Exxon with a 90% tax rate,it would not be unreasonable. They need to be doing what they are supposed to be doing-finding oil-they are an oil company.
So that is the story on the windfall profits tax on oil companies. If it is enacted,it should be imposed on an individual company basis since some companies are being good corporate citizens while others are not.