Title: Would Oil Suppliers keep a “gas tax holiday” as profit?
Let’s look at some real numbers. The following table is excepted from Exxon-Mobil (as a proxy for Oil Supplier) financial statements 2003-2007.
2003 2004 2005 2006 2007
Revenue $246.7B $291.3 $370.7 $377.6 $404.6
Excise Taxes $(61.5) $(68.2) $(72.3) $(69.6) $(72.7)
Operating Profit $32.0 $41.2 $59.4 $67.4 $70.5
Op Margin 13% 14% 16% 18% 17%
So for the last 5 years the margin has been in a range of 13% to 18% Why? Because if Exxon-Mobil were to raise prices for a higher profit margin, say 20%, they would could not sell much oil, as their competitors Chevron, Shell, BP etc. would have lower prices. They are profit maximizers.
Going back to the table, out of the “Revenue” line, XOM remits “Excise taxes” to the government. Let’s just say at the beginning of 2007, the winner of the pander sweepstakes had passed an “Excise gas tax holiday!” so that Exxon-Mobil did not have to forward the $72.7B in excise taxes.
Which of the following would you expect?
1) Price competition causes Exxon to maintain an operating margin around the 13-18% average of the past 5 years.
2) Exxon keeps the $72.7B as profit, resulting in $143.3 B operating profit ( $72.7 + $70.5),or operating margins to double to 35%
If you picked option 1, then you believe tax relief will accrue to the retail customer. If you picked option 2, or “the economist option,” then you believe gas tax relief will accrue to the supplier (and that the management of Exxon-Mobil should be summarily fired for leaving so much money on the table over the last 5 years).
Of course you might say “it’s somewhere in between, say 20% ops margin” ……..(inferred ops profit of $80B…in which case the customer would have only kept around 85% of the tax relief).
This one by sammy.