Tax Hollywood !
Congress’s unsound fury over Big Oil
Movie theaters capture more windfall profit than oil companies.By Justin Danhof
from the August 7, 2008 edition
Washington – With this summer’s high gas prices, Americans are trading in their traditional vacations for “staycations” – vacations much closer to home.
But compared with other things Americans might do, driving is still a bargain.
Consider, for example, the costs of going to a movie:
To take a family of four to a movie at an AMC Theatre, it will cost anywhere from $55.75 to $71.50, depending on whether the family shares movie snacks or not, and this does not even include gasoline.
For that same $71.50, the family could purchase enough gas for their car (of decent gas mileage) to drive from Disneyland to Las Vegas and back again. And for the price of tickets and extra-large refreshments, , they could drive from Disneyland to the Grand Canyon and back again.
Where are the calls for federal investigation into price gouging at concession stands?
For years, populist politicians have dragged oil industry executives to Capitol Hill and accused them of price manipulation. Every time gas prices increase, liberal lawmakers direct the Federal Trade Commission to investigate oil industry price gouging. To their chagrin, the FTC has never found oil industry price manipulation.
What evidence does congress use to back their price gouging claims? Try none.
In 2005, Sen. Maria Cantwell (D) of Washington responded to a question on whether she believed oil companies were price gouging, “[a]bsolutely.” she said. “I just don’t have the document to prove it.”
And this past May, in a speech on the House floor, Rep. Debbie Wasserman Schultz (D) of Florida targeted oil company executives when she said, “I can’t say that there’s evidence that you are manipulating the price, but I believe that you probably are.”
Shouldn’t we demand more from our politicians than unfounded accusations?
These congressional hearings are often followed by attempts to impose so-called windfall profits taxes on oil companies. The process is reminiscent of the medieval practice of trial by ordeal, in which the accused are subjected to a painful – possibly fatal procedure – with the expectation that the truly innocent will be saved.
So far, the oil companies have survived. The most recent attempt to impose such a tax on “unreasonable” profits failed in June.
And just what do congressional advocates of a windfall profits tax consider unreasonable?
In the first quarter of 2008, Big Oil had a profit margin of 7.4 percent. Over that same period, the pharmaceutical and medicine industry earned a 25.9 percent profit, the chemical industry earned 15.7 percent and the electronic equipment industry earned 12.1 percent.
What about those movie theater refreshments? Four large popcorns and four large sodas cost $31.50. The total raw ingredient cost is approximately $7.56. That equals a 76 percent gross margin. Where is the political outrage over that figure?
Still believe it is the oil companies gouging us? Speaker Nancy Pelosi seems to.
Ms. Pelosi has called oil company profits “obscene,” and recently supported yet another measure to investigate alleged oil industry price gouging.
Let’s take a look at where each dollar spent at the pump goes. In the first quarter of 2008, the majority – 70 cents – was spent to purchase crude oil, 17 cents was spent on refining and retailing, and 13 cents on paying taxes.
American oil companies cannot change the largest factor influencing gasoline prices – the cost of crude oil.
In The New York Times, columnist Edmund L. Andrews asked satirically last year “if the oil industry is so powerful, why did it let gasoline prices fall through the floor throughout the 1980s and part of the 1990s? For that matter why did it let gasoline prices fall sharply after they spiked in 2005 and 2006?”
Pelosi never decried this “obscene” lack of profits and shareholder abuse. Instead, she seeks to punish an industry that makes a modest profit margin on a high demand good.
• Justin Danhof is a research associate with the National Center for Public Policy Research, a nonpartisan, nonprofit educational foundation based in Washington.
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