TIME FOR IRAQ WAR OIL PROFITS TAXES – PART I
HASTINGS-ON-HUDSON, NY - The reality of U.S. troops killing and dying for Iraqi oil hit U.S. public consciousness hard on June 19, 2008 when it was announced that the occupied government of Iraq intended to award no-bid oil service contracts to ExxonMobil, Shell, BP, Chevronand Total.
Political cartoonist Jeff Danziger deftly captured the contradiction of great wealth being amassed by giant oil companies in the midst of great suffering in a drawing showing celebrating, self-indulgent oil executives riding on the backs of two U.S. soldiers in Iraq.One soldier says to the other: “This is what they really mean by ‘Mission Accomplished.’”
Danziger hit not only the essence of the U.S. occupation in Iraq, he touched a deep vein in U.S. political history of revulsion against war profiteering.
In World Wars I and II and the Korean War, the United States imposed excess profits taxes on corporations not only to raise money to pay for the wars but also as an expression of simple decency, captured in a much-quoted statement of President Franklin Roosevelt in 1940: “I don’t want to see a single war millionaire created in the United States as a result of this world disaster.”
Stuart Brandes describes the political climate for the World War II excess profits taxation in Warhogs: A History of War Profits in America:
“As Americans debated participation in what would become the most expensive war in their history, circumstances were uniquely favorable for a successful campaign against war profiteering.The social memory of profiteering during the Civil War and the Great War still gripped the popular imagination.The antiprofiteering constitutency was large, determined, and well organized in Congress.The White House was occupied by an experienced, able, and popular leader who spoke eloquently and often against profiteering.The reservoir of support for antiprofiteering measures was therefore broad and deep.”
Brandes also points out that economists and politicians had gathered knowledge of how to control war profits through the experience gained in World War I and further advanced in the years just prior to and into World War II.
The result was a series of excess profits laws starting in 1940 with rates below 50 percent, rising to 90 percent in 1942 and finally in 1943 a 95 percent tax on profits on earnings above a firm’s average earnings for 1936-1939; or an alternative tax based on revenue compared to investment.These excess profits taxes are credited in The Cambridge Economic History of the United States with generating two-thirds of the tax revenue from business between 1941 and 1945.Congress repealed the excess profits tax in 1945, effective January 1, 1946.
Now, more than two generations later, with national memory of war profits taxes faded, the U.S. and world economies reel under $140/barrel oil prices - at their current levels in significant measure because of the Iraq War – while major privately-held oil companies pile up record profits in the midst of gross suffering on and off the battlefield.
Congress’ Joint Econcomic Committee noted in a November 2007 report that the Iraq War has affected the world oil price by stunting Iraqi oil production and creating fear that the war will spread and further disrupt oil shipments.Nobel Laureate in economics Joseph Stiglitz and public finance expert Linda Bilmes report in The Three Trillion Dollar War that:
“ExxonMobil and other oil companies have been among the few real beneficiaries of the (Iraq) war, as their profits and share prices have soared.Meanwhile, the economy as a whole has paid a high price.”
ExxonMobil has accumulated $163 billion in record profits in the five-year war period, not only because of the increase in oil prices but because of increased sales of petroleum products to the Pentagon, which amounted to $4.2 billion from 2003 to 2007.
Shell and BP compete with ExxonMobil for leadership in Pentagon sales.
ExxonMobil, Shell, BP, Chevron and ConocoPhillips, the so-called Big Five oil producers, have benefited far more than their smaller American competitors during the war years.A study from the James W. Baker Institute for Public Policy at Rice University reported in 2007 that the profits of the Big Five in 2006, combined, amounted to $120 billion compared to $31 billion for the next 20 largest American oil firms, combined.
The Rice report shows that as cash flow for the oil companies skyrocketed with the Iraqi invasion and the rise in world oil prices, the Big Five used the increased income not so much for development, exploration, acquisitions or increased dividends as for buying back stock, increasing the wealth of management and large shareholders.