June 18, 2018
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President Scapegoat can’t stop picking on big oil

By Caroline Baum, Bloomberg

Barack Obama isn’t the first president to conjure up scapegoats to serve his political ends. The Roosevelts, both Teddy and Franklin, were masters at the game. TR decided the trusts were an enemy of the people and busted the likes of Standard Oil and Northern Securities, which controlled the railroads in the northwest. FDR demonized just about anyone who had money.

Harry Truman seized the steel companies to avert a nationwide strike, noting that “the steel industry has never been so profitable as it is today.” When U.S. Steel and other large steel producers raised prices, John F. Kennedy chided them for pursuing “private power and profit” at the expense of 185 million Americans.

Sound familiar? Substitute Obama for Truman, and oil for steel, and the tactics are quite similar.

Obama has elevated scapegoating to a new level. He has his usual suspects – the “millionaires and billionaires” who serve as foils at campaign events – as well as temporary targets that come and go as the situation warrants.

For example, insurance companies played the role of villain during the health-care debate in 2009. When it was time to craft the Dodd-Frank financial-reform bill, banks were the bad guys. As for oil companies, they are a permanent pebble in Obama’s shoe.

In a Rose Garden speech last week, the president appealed to Congress to “stand with the American people” and vote to end subsidies to the oil and gas industry.

“Last year, the three biggest U.S. oil companies took home more than $80 billion in profits,” Obama said before itemizing Exxon Mobil’s hourly take-home pay ($4.7 million).

One hour later, Senate Republicans rejected the Democratic measure.

Listen to Give ‘em Hell Harry in 1952: “Steel industry profits are now running at the rate of about $2.5 billion a year. The steel companies are now making a profit of about $19.50 on every ton of steel they produce. They don’t need this,” Truman said of a $3-a-ton price increase.

I agree with Obama that oil companies don’t “need” subsidies, some of which have been in place since 1916. But the reason isn’t their profitability. It’s that preferential treatment creates its own incentives, distortions and economic inefficiencies. Besides, the government isn’t good at picking winners and losers. (See General Motors’ Chevy Volt.)

What’s more, the “giveaways” Obama was referring to are deductions and tax credits available to all domestic manufacturers. Why pick on oil and gas companies, which already pay an effective tax rate of more than 40 percent?

I think we know the answer. First, average gas prices are approaching $4 a gallon, and the presidential election is seven months away. Rightly or wrongly, consumers hold the chief executive responsible.

Second, oil companies have committed the sin of profitability. Does Obama understand that one reason profits are so big is that the companies are big? Other better measures, such as profit margins (net income divided by sales), show energy producers underperforming other kinds of companies. For example, the average profit margin for the six largest U.S. integrated oil and gas companies was about 11 percent last year, compared with almost 14 percent for the Standard & Poor’s 500 companies.

There are lots of other industries and special-interest groups that don’t “need” subsidies and/or tax breaks. But they have them because of mutual back-scratching by members of Congress, who are much better at catering to their corporate clients than to their constituents.

I would venture to say that if a business isn’t viable on its own, it isn’t viable. “Need” is in the eye of the beholder, which in most cases is the federal government, aided and abetted by corporate lobbyists helping Congress see things their way.

“Instead of taxpayer giveaways to an industry that’s never been more profitable, we should be using that money to double- down on investments in clean energy technologies that have never been more promising – investments in wind power and solar power and biofuels; investments in fuel-efficient cars and trucks, and energy-efficient homes and buildings,” Obama said. “That’s the future.”

He knows this.

Singling out oil and gas companies for punishment may solidify his populist credentials, but Obama knows that repealing $4 billion of deductions is a drop in the bucket compared with an annual $1 trillion of tax breaks and loopholes in the federal budget.

Besides, with Obama it’s never really about the cost savings. If it comes down to a choice between good economics and sound policy on the one hand and “fairness” – fairness as defined by Obama – on the other, we know which one our president will choose. At a Democratic debate during the 2008 presidential-election campaign, ABC News’s Charles Gibson asked Obama why he wanted to raise the capital-gains tax when history suggested a lower rate brought in more revenue to the Treasury.

“Well, Charlie, what I’ve said is that I would look at raising the capital-gains tax for purposes of fairness,” Obama replied.

Singling out specific industries as scapegoats for his political purposes doesn’t strike me as particularly fair. I guess it depends on what the meaning of fairness is.

Caroline Baum, author of “Just What I Said,” is a Bloomberg View columnist.

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