Exxon Shatters Its Own Profit Record

Linger with that thought a moment. How does that make you feel right now? It’s the headline in an Associated Press article this morning that described the third quarter earnings report of this largest of the publicly-traded oil companies. You can pretty much take this as an industry report. By the way, these earnings exceeded those of any other U.S. publicly-traded companies in any area. $14.83 billion in the third quarter; $11.68 billion in the second quarter. We can expect these numbers to decline since oil prices fell significantly in the fourth quarter, but oil companies are not suffering.

Let’s try another term – depletion allowance. This concept, very much a part of the United States Internal Revenue Code, addresses the notion that the more you extract minerals from the earth (including oil), the less such minerals are left to extract in the future, so you should be able to reduce your deemed taxable revenues by some number that reflects the reduction in future potential. Great concept when you put it that way. So effectively, big oil pays taxes on less than they actually earned, because they can deduct a percentage “depletion allowance” against their income.

I guess this sort of eliminates the notion that as minerals get scarce (from excessive drilling, extraction, etc.), as long as folks need ‘em, the price automatically goes up and adjusts for the reduction in available resources. Silly me, why would I think economics would have anything to do with subsidizing big oil? They are big campaign contributors; I just forgot. Sorry.

Let me put it yet another way that might make this tax deduction sound even “less” fair. When oil soars in price, shatters all records, makes more money than anyone believed possible, is there the slightest rationale for continuing to give big oil a break that they not only don't need but are probably even embarrassed about?! If you're going to give big oil (and other “big mineral” companies) a big fat deduction to cover their “expected bad times” in the future, shouldn't you at least have an off-setting “windfall profits” tax in exceptional times – when they blow their profit records off the charts – especially in particularly bad economic times when the government needs lots of money to feed a recovery plan?

Maybe in a future life, I can come back as an oil company. Meanwhile, I've got to get back to work so I can pay my share of taxes. At least I still have a job.

I’m Peter Dekom, and I approve this message.