It is so sad to see them taxed to the point where they can only earn “RECORD PROFITS” on a regular basis.

May God smite with the same taxes and may I never recover.

maybe limited production maintains higher prices?, that whole supply and demand thing??

“Anarchist” Vegetarian asked, Are you insane?

It’s always bad news when a communist asks this question. You better watch out robert108. If AV isn’t successful with his economic reeducation, he might try to kill you. You know how those commies act when they don’t get their way.

Self Explanatory.

Likwidshoe, looks like I’ll have to add you to my list of people who don’t understand markets (and maths, along with Robert108, Goon, and Rob).

If a 1% increase in price leads to more than a 1% fall in quantity demanded, we say that market demand is elastic. If a 1% increase in price leads to less than a 1% fall in quantity demanded, we say that market demand is inelastic. — Robin Hahnel, an economist

The oil market appears to be inelastic as demand has barely fallen (and in one of Rob’s articles, he claimed that Americans were driving more now than ever before) even though the price has risen dramatically over the last four years.

1/ OK with that out of the way, it stands to reason that as oil prices go up, revenue goes up since demand barely falls (since the oil market is inelastic).

2/ If revenue goes up, oil companies have more money to spend. A truism? We can look at the reverse and say: if revenue was zero they would have very little to spend?

3/ High tax rates (either as tariffs or as tax on profits) on oil companies causes higher oil prices.

4/ Higher oil prices mean more revenue.

5/ If an oil company allocates 10% of revenue for exploration (pulling this number out of my ass simply as an example), higher revenue means more exploration.

P.S. I find it very funny that the biggest proponents of markets are also some of the people with the poorest grasp of markets. If you disagree with any of my points still, I’ll break out the maths for you if you want. Just for the record, I am an arrogant sod.

Why would the oil companies do more exploration if they were taxed less?

Two words for expanding our petroleum industry. Executive Order.

“Anarchist” Vegetarian – Likwidshoe, looks like I’ll have to add you to my list of people who don’t understand markets (and maths, along with Robert108, Goon, and Rob).

Coming from a Marxist such as yourself, that’s music to my ears.

3/ High tax rates (either as tariffs or as tax on profits) on oil companies causes higher oil prices.

4/ Higher oil prices mean more revenue.

More revenue for who? This is where you spectacularly fail in your logic. (The answer is more revenue for the government, not the oil companies.)

5/ If an oil company allocates 10% of revenue for exploration (pulling this number out of my ass simply as an example), higher revenue means more exploration.

What higher revenue? You are telling us that the revenue that went into government coffers actually went to the oil companies.

P.S. I find it very funny that the biggest proponents of markets are also some of the people with the poorest grasp of markets. If you disagree with any of my points still, I’ll break out the maths for you if you want.

Then “break out the maths”. Show us how higher taxes leads to bigger bottom lines for the oil companies. This is what you were attempting to tell us with your point number four. Now here’s your chance to prove it with “the maths”.

I was simply pointing out that possibly ideology, not logic, may have led to these poorly thought out opinions by showing that higher taxes may actually increase exploration.

Where did you show that? You did no such thing.

Robert108: Maybe there is hope for you yet if you can realise that the oil market is (relatively) inelastic.

As to whether taxation is harmful or not, that wasn’t my point. I already noted that taxes on the oil industry increases the price. I was responding to this:

Remember that oil exploration, and the development of known oil reserves, requires billions of dollars of investment before any of that oil can be sold for profit. So when the government burdens the oil industry with such heavy taxes and regulations, they literally inhibit the oil industry’s ability to find more oil to meet increasing demand and make our oil industry more secure. — Rob

And then this:

AV, the concept of big business is that if the government is going to tax the crap out of they are going to spend less money on things like Exploration. — Goon

These claims have been made without any arguments to back them up. I was simply pointing out that possibly ideology, not logic, may have led to these poorly thought out opinions by showing that higher taxes may actually increase exploration.

Bat One: I am certainly no expert on economic issues, but I have some background in maths. For once, I found it hard to find a point in one of your posts. Was it that my example was to simplistic to draw the conclusions I did? Or do you have issue with one of my points 1-5?

Also, just because I have tried to show that higher taxes could lead to more exploration, it doesn’t mean this is what I support. (How could I be an anarchist if I support taxation – or confiscation as Robert108 calls it – by some illegitimate authority?) I simply had issue with Rob’s analysis of the effects of taxation on oil exploration.

Anarchist Vegetarian – But what would a tax increase do?
If the entire oil industry spent most of their revenue on taxes, oil exploration and extraction is now a small cost compared to their tax burden. If the oil businesses increased their exploration costs, this would have a smaller effect on profit, or price at the pump, and so it would be more affordable. A new equilibrium would be found which would probably mean more exploration.

Before you go on about Rob’s “daft” logic, check what you wrote up above. Higher taxes = “probably mean more exploration” and “more affordable” to explore?

AV:The Fucking Retard always uses this tactic. It just spins around in circles. People take the time to explain basic economics to it, and it still spins around in circles. As I stated a year ago, the only dialog that is applicable to AV:TFR is derision, heaped on generously with the Shovel, Type Derision Heaping, Unit of Issue; one each.

And AV:TFR, I am entirely indifferent to you, as is every other adult at this blog and everywhere else you leave your trail of slime. Ain’t that precious?!?!?

I am certainly no expert on economic issues…

Agreed. The simple fact is that a certain percentage of a company’s profits are used for maintaning the current operating level of the business, a certain percentage is paid to the stockholders, and what is left over goes into R&D, expansion, etc. When the govt confiscates some of those profits in taxes, that reduces the amount the company can spend for the above purposes. If the govt takes too much, it is usually R&D that suffers, which, in the case of the oil companies, means exploration and development of new sources. Get it now?
Taxes are non-productive of wealth, except for the political class, which produces no wealth of its own; govt is parasitical, for the most part.

AV,

Not to put too sharp a point to it, but you are just about the last person to disparage the economics knowledge of anyone else here. You’ve spent an inordinate amount of time and space vainly trying to rationalize jacking up taxes on oil companies, using some silly nonsense about exploration and the deliberately misapplied statement of a no-name economist to justify your suggestion. And it is just that…nonsense!

But all you’ve really managed to do is impress those of us who can count with your own astounding ignorance. Your premise is pitiful, your “logic” is laughable, and your conclusion is as convoluted as anything posted here in the past 2 years.

The fact is, we could raise gasoline taxes ten-fold and the oil companies would have no more money, or incentive, to expand their exploration efforts than they have now since tax revenues go to the government, not to the companies that are forced to collect them.

Nor is your assumption about the elasticity of the oil market correct. Not surprisingly, you’ve managed to confuse two very different markets. The international market for crude oil is not lacking in elasticity so much as it blessed/cursed with increasing demand due to a robust and growing world economy. Russia, China, India, the US, and a newly revitalized Europe led by lowered tax rates, have all experienced strong economic growth leading to increased demand for crude. Thus a $75 per barrel world benchmark price, at which no one blinks an eye.

The same is not true of the domestic market for gasoline, however. Sales, measured in gallons, not dollars, have dropped off as retail prices have risen (including increased taxes). Do your homework!

All of this is merely periphera, however. Your stated point was to fund increased exploration by raising taxes. But the truth is, there is plenty of oil available. Indeed, we could probably double our domestic production, IF WE WANTED TO DO SO. Instead, we have restricted the oil companies from drilling off either the East or West coast, restricted our drilling in the Gulf of Mexico (not the communist Chinese, however), and restricted drilling in northern Alaska which could have reserves equal to those of Iraq.

Furthermore, even with substantially increased supplies of crude, the fact is we do not have anywhere near the refining capacity necessary to process it. This country hasn’t built a new refinery in over 30 years, a period of time during which our population has increased by 45%, real GDP more than doubled, and per capita GDP went from $20,000 to over $37,500. (See here). As Iran is now learning to its domestic discontent and detriment, an overabundance of crude oil is meaningless if there isn’t sufficient capacity to turn it into something useful.

I don’t know where you get the idea that you are some sort of market maven, but clearly economics and the vagaries of the international and domestic oil markets aren’t your strong suit. Neither is domestic tax policy. Perhaps beef or pork bellies would be a better market choice.

As an example as to how markets, businesses, and even taxes can work, I have demonstrated that a raise in tax could actually lead to more oil exploration.

AV,

With all due respect, what you’ve written here is a crock! Apparently you “feel” that putting words on paper (rhetorically speaking) constitutes a sentient, cogent argument. It does not!

Raising taxes on the oil companies is not going to result in increased exploration. Period. As a student of economics, you’ll probably make a pretty good interior designer.

If higher taxes leads to oil businesses raising their prices, then obviously revenue will increase (since the oil market is elastic, and that the tax increase applies to all players in the market).

No. Since taxes are an expense to the oil business, increasing them actually decreases revenue to the oil business. You see, it’s actually a concept called double entry bookkeeping.
You see, “logic” only works if the premise is true, and your premise is false.
BTW, the demand for oil is relatively inelastic, but not perfectly so. If the price of gasoline, for instance, gets high enough, so called “alternative fuels” will become economically practical. We are a long way from that point. The other factor in the relative inelasticity of the demand for oil is its wide range of uses, all of which are economically profitable.
Elasticity has nothing to do with whether or not a tax applies to all the “players”; “elasticity” actually describes how the demand for a commodity responds to price changes. Class over.

If all oil companies (even just within a region) received a tax-break, why would they spend more money on exploration? If there is competition, oil prices will drop, and revenue will be lower.

This dramatically shows your ignorance of the free market system. Like with any commodity, higher commodity prices are great incentives (not less as you claim) for producing more of the commodity. Gold is a perfect example as prospecting and mining has significantly increased with the much higher gold bullion pricess. The same is true for oil. If it wasn’t for the extreme environmental regulations there would be exploration everywhere and possibly development of the oil shale deposits. Like other commodities, oil exploration and production is not the rxclusive domain of large companies. Apparently you have never heard of oil wildcatters which are independent oil exploration and production ventures. Anyway, my point is that if the rewards for a given commodity are great enough, there will be plenty of new competitors entering the respective commodity field.

No. Since taxes are an expense to the oil business, increasing them actually decreases revenue to the oil business. — Robert108

Are you insane? If I had a company selling an inelastic good and the government upped the tax, I’d up my prices. And since demand for the good is inelastic, my revenue would increase.

Also, I am aware of bookkeeping, and that is completely off-topic, it changes nothing.

I wrote a simple Python script to demonstrate. This simple model assumes an oil corporation will try to reach a given profit rate for shareholders despite taxation changes:

price = 50.0 # $50/barrel
barrels = 2.0 # Number of barrels sold, small numbers are easier to follow
revenue = price * barrels

margin = 0.78 # 78% gross margin from 2006
costs = revenue * (1.0 – margin)

print “Revenue: $%.2f Costs: $%.2f” % (revenue, costs)

# Net profit as a percentage of revenue was 9.5% in 2006.
profit = 0.095 # Profit rate
t_rate = 0.30 # 30% tax rate

# Eploration and other taxable costs.
explore = (revenue – costs) * (1.0 – t_rate) – profit*revenue
print “Exploration and other post-tax costs: $%.2f” % (explore)
print “\nNet Profit: $%.2f” % (profit*revenue)

# Da evil guvvamint changes da tax!
print “\n\nTax rate is changed from 30% to 50%”
t_rate = 0.50 # 50% tax rate

new_profit = 0.0
year = 2001

# Calculate new values after a tax increase. This is a simple first-order
# model.
while (profit – 0.005) > new_profit or new_profit > (profit + 0.005) :
new_revenue = price * barrels
new_margin = costs / new_revenue
gross_profit = new_revenue – costs
tax = t_rate * gross_profit

new_profit = (gross_profit – tax – explore) / new_revenue

print “%d: Cost/Barrel = $%.2f\tRevenue = $%.2f\tProfit Rate = %.2f\tNet Profit = $%.2f” % (year, price, new_revenue, new_profit, new_profit * new_revenue)

year += 1
if year > 2020: break

# Scale by a constant so convergence is quicker.
diff = 2.0 * (new_profit – profit)

# Oil market is inelastic so a 1% increase in price will
# cause less than 1% decrease in demand:
price *= (1.0 – diff)
barrels *= (1.0 + 0.5*diff)

You’re right; I was imprecise; I am speaking about net revenue, which is what you put in your pocket.

In the real world(not your communist delusion), your greed would be checked by competition. You jack up your prices, the competition takes your business by not jacking up their prices. Price inelasticity does not mean monopoly.

Tax on profits isn’t deducted from revenue directly…

Revenue is what is left over after all expenses have been deducted, including taxes; in other words, net profit. Duh.

If the gov. one day decided to increase the corporate tax rate only on the oil industry, the oil companies would simultaneously raise their prices (and it wouldn’t even require collusion, game theory could explain it).

This is what my imaginary scenario was dealing with. The oil industry can get away with this because demand for oil is inelastic.

But who would pay the price for these tax rate increases? The consumers of course.