Defenestrating Thoughts from the Bivouac

Last year, I wrote about how the USDA won’t allow companies to test beef to see if it has Mad Cow disease. The government, in its infinite wisdom, has made it illegal to test beef.

Hmm…

Today, I saw an article that says that the FDA will now allow producers to use radiation to kill E. coli and other germs on spinach and iceberg lettuce. That’s right, it was illegal for companies to do this until today. Never mind that the same technology has been used on meat and spices for years.

Keep in mind that the spinach scare was last year. It took a year for the government to decide it was legal to get rid of deadly bacteria on spinach before selling it to us.

Anyone that has been in charge of anything knows that only employing reactionary actions precludes any competent execution. Which makes this line in the article all the more frustrating: “The FDA still is considering industry’s petition to allow irradiation of additional produce.”

And instead of just complaining, here’s a simple solution: let companies decide if they want to irradiate the vegetables they sell or not. And let companies decide if they want to test for Mad Cow or not. We, the people, will buy what we want. Simple and efficient.

The comic I just posted reminds me of all the hubbub about oil companies and their “windfall” profits that came up last earnings season:

Exxon Mobil once again reported the largest quarterly profit in U.S. history Thursday, posting net income of $11.68 billion on revenue of $138 billion in the second quarter. (CNN)

This, of course, caused all politicians to express outrage and come up with plans to tax “Big Oil”.

Being a nerd, my reaction to the record profits was: “Hmm… I need more data.”

Now, obviously gas at the pump is much more costly. But crude is much more costly too. So oil companies have the price of their raw materials going up while charging their customers more. So where’s the windfall?

It’s not like someone gave the oil companies a bunch of free crude oil (a “windfall”) and they went ahead and charged us $4 per gallon on it.

Let’s look at it another way: the profit margin:

• Conoco Phillips (COP) has a profit margin of 8.45%
• Exxon Mobile (XOM) has a profit margin of 10.17%
• Chevron (CVX) has a profit margin of 7.91%

So, for each $1 of revenue, oil companies are making around 8 to 10 cents. That sort of sounds like a lot. Right?

Well, now look at some other companies. Let’s start with my resume. :-)

• Xilinx (XLNX) has a profit margin of 19.84%
• Microsoft (MSFT) has a profit margin of 29.26%
• Google (GOOG) has a profit margin of 14.54%

So why aren’t people calling for windfall profit taxes on “Big FPGA”, “Big Operating System”, or “Big Internet Search”?

Sure, Exxon made a LOT of profits. But it’s only a lot because they do a LOT of business.

Here’s an interesting tidbit buried in the CNN article:

In addition to making hefty profits, Exxon also had a hefty tax bill. Worldwide, the company paid $10.5 billion in income taxes in the second quarter, $9.5 billion in sales taxes, and over $12 billion in what it called “other taxes.”

So we have $11.68B in profits, but $32B going to the government. Looking at the SEC filings we see that Exxon is being taxed at an effective income tax rate of 49%.

At this point, I’m not sure we have a case for windfall profits that need to be taxed more.

And to be clear, just because I’m against “windfall profits taxes”, it doesn’t mean I support all the tax subsidies and everything else that oil companies get from the taxpayer. I’m against all of that too. :-)

(From Anarchy In Your Head via the LRC Blog)