The View From 1776
Sunday, February 12, 2006
Windfall Profits Taxes
Shouldn’t Congress always slap windfall profits taxes on companies that make ‘obscene’ profits (at public expense)?
If high profit margins are evidence of price-gouging and therefore deserving of punishment with windfall taxes, then Exxon has lots of company, of all places, in the liberal media. Why not levy special taxes on CBS, NBC, the New York Times, and the Washington Post, companies that have operating margins substantially higher than Exxon’s?
Anxious to show their constituents that they are in there ‘fighting for the little guy’, Congressional Democrats led by Senator Byron Dorgan, Democrat from North Dakota, attempted to impose a windfall profits tax on ExxonMobil after it reported record quarterly profits.
Exxon, of course, didn’t raise prices to gouge the public. Its profits soared temporarily because Hurricane Katrina caused disruption of oil output in the Gulf of Mexico and put New Orleans area refineries out of commission. With an immediate curtailment of spot market supplies, every user of oil in the world bid higher prices to get as much of the reduced supply as possible. This is Economics 101, the law of supply and demand.
Liberal-progressive-socialists, however, live in a different world, one in which government bureaus decide who should get what and at what price.
Think-tanks like left-wing Center for Economic and Policy Research (CEPR), led to no one’s surprise by Harvard economists, rolled out white papers to demonstrate that such profits are indecent in a good socialist society and really belong to ‘the people.’ Congressional Democrats, who are proxies for ‘the people,” naturally would be entitled to take possession of those indecent profits and spend them on Democratic Party vote-building projects in New Orleans.
The specious argument is that everyone buys gasoline regularly, because automobiles are part of our daily lives, therefore consumers should not be subject to the law of supply and demand. They should be entitled to a maximum price per gallon at service station pumps.
The same argument, however, applies in spades to media companies, some of which, like Dan Rather’s CBS, have government-granted monopolies. CNN, in a January 30, 2006, news story reported that the “...... previous [quarterly profit] mark was held by Media One, the cable television operator that eventually became part of Comcast. It posted net income of $26.3 billion in 1998.”
More people watch TV every day than drive automobiles to work. Why shouldn’t CBS or General Electric’s NBC, occupying government-monopoly band width, be subjected to windfall profits taxes on the tasteless and left-leaning programs they air? If they didn’t charge such high advertising rates, prices on products all of us use would be lower.
Forbes Magazine in its February 27, 2006, article Those Rapacious Media Companies notes: “Big oil companies have huge bull’s-eyes on their backs. Record profits (like ExxonMobil’s $36 billion) and $65 oil have made the industry targets of politicians, newscasters and editorial writers who claim the oil companies have rigged the market and gouged consumers. The cry is up for a windfall-profits tax. But wait. What if “windfall profits” were defined to include any fat margin? Media companies would be much more exposed than oil companies.”
CBS’s operating margin of 26% is 63% higher than ExxonMobil’s 16% margin. The Washington Post, at 23%, and the New York Times, at 18%, both ‘gouge’ the public more deeply than ExxonMobil.
Left-wing-social-policy investor Warren Buffet made a huge investment in the Washington Post years ago, because, he said, it has a monopoly brand-name franchise that insulates it from competitive pricing pressure. The same can be said of the New York Times, even though the current Mr. Sulzberger seems to be doing his best to decrease the value of his family’s asset.