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Companies would spend on exploration if they could

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Simple Steps to Cut Oil Company Profits

Companies would spend on exploration if they could

With gasoline hitting $3 a gallon across the country, and Republicans already smelling voter dissatisfaction in the air, it seems everyone in Congress wants to do something about gasoline prices—especially before the November elections.

But what? Price controls? A windfall profits tax? A public scolding?

If you are a little puzzled by all of this, that’s understandable. For years liberals have been calling for a gas tax that would boost the price of gas up to about $3 a gallon. So why aren’t they happy?

Well, the stated purpose for the gas tax was to discourage gas consumption and encourage public pressure on Congress and the White House to promote alternative fuels, mass transit and clean energy. Well, they got their $3 a gallon and all of the above is happening, but liberals still aren’t happy. That’s because they wanted that extra $1.50 or so per gallon of gas so they could pass it on to various environmental and liberal groups, which would in turn support the liberals.

What’s happened instead is that money is going to oil companies, which tend to support Republicans. ExxonMobil has reported $6 billion in profits for the first quarter of 2006, after reporting $36 billion, a record amount, for 2005.

We don’t pretend to know whether oil company profits are too high, too low, or just right. For that matter, neither should Congress. But since there is growing public pressure to do something about the profits, how about something that would actually do some good?

Oil companies invest part of their income into exploration. ExxonMobil says it spends about 30%. If Congress were to open up the Arctic National Wildlife Refuge (ANWR), land off the coast of Florida and other places with proven reserves, oil companies would have an array of new places to drill and explore. They would be spending more of that money that is currently going to profits on increasing America’s energy supply.

Profits would decline because expenses (i.e., drilling) would be going up. Americans would have more oil, making the public happy. And oil profits would go down (at least initially), making the politicians happy.

Or is it just easier for Congress to do the wrong thing, because … that’s what Congress always does?

Written By

Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter: @MerrillMatthews.

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