In a June 20 editorial, the BDN admits its opinion in favor of a windfall oil tax may be a “knee-jerk reaction.” Given that Big Oil supplies the U.S. with so much of our energy it seems like our policy toward Big Oil should be more carefully thought through to avoid unintended consequences.

Although I’m a strong believer in free market capitalism, I also believe that appropriate regulation is necessary to increase stability and opportunity for all. Punitive actions against companies or industries may sometimes be necessary as part of effective regulation. The question is what conditions justify punitive actions? These conditions should be well defined instead of emotional knee-jerk reactions.

For Big Oil, I propose punitive actions if any of the following conditions are met: 1) If they engage in anti-competitive business practices. 2) If they find a way to avoid paying taxes. 3) If their profit margins are clearly “unreasonable.” 4) If their total return to the owners over an extended period of time is clearly “unreasonable.” 5) If a large majority of the returns go to an elite few people instead of being distributed more broadly.

Let’s see how Big Oil, ExxonMobil in particular, is doing against this criteria.

For political reasons, Big Oil has been the subject of numerous federal investigations over the last 15 years. None of these investigations has found collusion, price manipulation, etc. The investigations were done under both Bush and Clinton administrations so we can’t blame the results on Bush being tied to Big Oil.

In 2007, ExxonMobil paid $29.8 billion in income taxes, which was 42 percent of its pretax income. Even with the so-called “tax breaks for Big Oil” that some politicians like to talk about, in 2007 ExxonMobil paid a total of $102.5 billion in taxes including income taxes, sales-based taxes, and other taxes and duties.

In 2007, ExxonMobil had much publicized record profits but their profit margin was 10.85 percent. I don’t consider that unreasonable.

When you look at the total return to the owners of ExxonMobil over the past 10 years you have an average annual return of 11.8 percent. That takes into account dividends, stock splits, share buybacks, share price appreciation … everything. That’s a good return but it’s hard to consider 11.8 percent excessively greedy.

The percent of ExxonMobil held by “insiders” is only five one hundredths of a percent. It is probably the most widely held company in the world because of its top place in many major indices that are mirrored by hundred or thousands of mutual funds, etc. The owners, often referred to as oil tycoons, are actually tens of millions of Americans trying save for retirement.

The criteria for punitive action has clearly not been met, so why is a punitive windfall oil tax so popular? I think it is because of the “B” word … BILLIONS. When we feel very real pain at the gas pump and then we hear that Big Oil made profits in the billions, emotions take over. It’s hard to apply reason until the emotions pass.

Based on the laws of economics a windfall oil tax will most likely make our pain worse in the future by further decreasing U.S. oil production. I hope our emotions pass before a windfall oil tax law passes. If the emotions pass then maybe we can talk about real solutions.

Dan Petersen lives in Hermon and has worked in software development.