Fact Checking Congress

The AP has a lot of faults. However, I give them credit for their FACTCHECK series of articles that they've been running. They've been pretty balanced, and gone against the grain of the MSM of late and been critical of President Obama and Congress.

The latest, a fact check on insurance profits shows something that Nance Pelosi, Harry Reid, and "The One"© don't want you to know, insurance company profits aren't that high.

WHAT!!! Wait, I was told they are making scads of money, and dead people are piling up so they can do it, how does that work?

It's actually pretty easy. If you only talk in dollars, and not percentages, it sounds like huge profits. When you actually look at the returns on investment and growth rates, the insurance industry is pretty far down on the list.

In fact, if you were writing a portfolio, most insurance companies would be in the sustainable growth category, an area you park money to keep up with inflation and mitigate risk, not to make a big profit.

Right now it might not even get into that category, with profits equalling only two percent of revenue. If you listen to the folks trying to demonize the industry, you'd think expenditures are only two percent of revenue, the rest going into some fat cat's pocket.

The other way the numbers are getting skewed is when someone wants to paint an insurance company as greedy they lump all profits, not just health insurance, into the equation. Companies that provide homeowners, health, life and auto insurance do have higher profit margins. Most of those profits come from the other products though. In fact, if you want to get mad, start looking up the profit to revenue margin on auto and life insurance, and ask why Congress isn't concerned about those.

So who makes more than insurance companies? Railroads, the folks who give you Tupperware, network and communications equipment makers (1ox insurance company profits), Coors brewing, Yahoo and others.

How come they aren't being demonized?

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Good for the GOP

The Republicans in the US Senate today blocked the Democrat's windfall profits gimmick, oops, tax from getting a vote on the floor. The bill needed 60 votes to get past a GOP filibuster, and only got 51, signalling it's death, for now.

While Barack Obama and others have claimed the GOP sold out the working class, that's simply class warfare rhetoric that wouldn't pass a basic economics test. How exactly does increasing taxes on oil companies help the working class? For those who failed to take, or just plain failed Econ in their sophomore year of High School, here's a hint, it wouldn't lower prices, it would raise them. Raising costs on producers has never lowered prices to consumers.

Some features of the bill sounded good, as campaign year sound bites but also fail the basic econ test. For instance, the idea that part of that tax could be abated by investing the money in refinery expansion. The problem, there is nothing in the bill to reduce the regulatory and legal hurdles that keep refinery expansion from happening quickly. It takes years to get approval, and past the judges, to do such expansion. Since the taxes aren't abated until the money is spent, it doesn't seem like a "win win" for the refiners.

Second, the idea that congress can somehow help lower the price of oil by "curbing speculation" is a folly. The solution was to require more collateral for oil trading on the market, and regulating US investments in energy in foreign mercantile exchanges. The first would just drive trading out of the US. The second would likely lead to a pull of foreign money from our markets, as other countries "regulated" their people trading across borders. Then suddenly this wouldn't look like such a good idea.

The final folly of the bill was the reduction of tax breaks to oil companies. Now, I'm not necessarily in favor of them. But let's think about this logically. The 10 billion or so they are talking about are tax breaks given to oil companies who invest in domestic production, and alternative fuels. Congress would like to take those breaks back, and give them to other people to............ find ways to produce more domestic energy, and look at alternative fuels! ARGHHHH!

Here's a few things to keep in mind about the profits of energy companies. The numbers are big, but the percentage isn't that great. For example, Exxon Mobile and Chevron had profit margins of 10.85% and 8.61% respectively according to Capital IQ. Bank of America on the other hand, had a 21.03% margin, Baxter Health Care, 15.12%, Apple Computer 15.13%, Yahoo!, 14.89%.
Will Congress decide that the profit margins of Apple and Yahoo, being 33% higher than Exxon have to have a "windfall" tax on them, also?

Good for the GOP, it takes balls to stand up in an election year, with high fuel prices, to the demagoguery of the Democrats. If you are one of the (evidently) millions of stooges who think anything in Congress's bill would have actually lowered your price at the pump, I've got a Lake in Central Wisconsin for sale, come see me.

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