Photo (cc) by Steve Snodgrass
If you’ve been following the debt ceiling battle (it’s been kind of hard to miss), you’re probably aware that our economy is teetering on the brink of a debt disaster largely because Republicans and Democrats can’t agree on raising taxes. The Democrats feel that any debt deal must at the minimum include closing a few lucrative tax loopholes for industries like oil. The Republicans counter they won’t go along with any deal that raises any taxes on any person or company at any time for any reason. This is apparently an ironclad promise made to the electorate by the Tea Party as well as other fiscal conservatives.
As fate would have it, one of the largest and most profitable companies the world has ever known announced it’s quarterly earnings Thursday afternoon. CNN/Money’s headline: Gas prices drive Exxon Mobil profit up 41 percent. From the article:
Exxon Mobil on Thursday reported a profit of $10.7 billion in the second quarter, up 41 percent from the prior year, driven in part by higher gas prices.
Peter Beutel of energy risk management firm Cameron Hanover said that retail gasoline prices surged in April and early May. He said prices were driven by a weaker dollar…
The Washington stalemate over raising the debt ceiling has caused the dollar to drop even further over the last couple of weeks. That’s because when things like a default become conceivable, investors dump dollars and move to currencies with less drama, like the Swiss franc. Why do you care? Because the more the dollar drops, the more we pay for oil. The more we pay for oil, the more money Exxon Mobil and other multinational oil companies make.
Bottom line? One could argue that the refusal of some in Congress to repeal tax breaks affecting a company whose net profit is more than $800 million a week is causing oil prices to rise, which in turn is making that company and others like it even more money. A win/win for Exxon: They don’t get a tax hike, and the argument over it increases their bottom line.
If you don’t understand the tax subsidies that the White House was proposing to remove, read about them in this CNN Money article. According to CNN, they would have cost the entire industry $4 billion a year: the amount just one company makes in about five weeks. In the meantime, as the stalemate continues, our retirement plans drop daily, we pay more for gas, our nation’s reputation is being tarnished, and the risk of a recession grows.
I respect what the fiscal conservatives are trying to do. Only an idiot wants to see bigger government and higher taxes. It’s obvious our government needs to reduce spending, and taxing “job creators” in a fragile economy is a bad idea. I get it. But Exxon wouldn’t have laid off workers if their taxes had gone up slightly. Like any business, when their product is profitable, they’re going to hire enough people to produce as much as possible. And as you’ve just seen, $100 oil is fabulously profitable.
Of course, it’s possible that agreeing to repeal tax breaks for companies like Exxon wouldn’t have been enough to bring about a compromise. But what if it had?
I see both sides in this debate. But there are at least two things here that aren’t debatable – the political stalemate is helping Exxon and hurting virtually every citizen of the United States.
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