Vendor Client Relationship 1

[SteelPE]

While I don't necessarily run into this, depending on the client, from time to time I do.

https://www.youtube.com/watch?feature=player_embedded&v=R2a8TRSgzZY

 

[zdas04]

That was freaking perfect. It seems like my industry (Oil & Gas) got extra stupid about thinking that the budget somehow obligated the suppliers about the time that we went bat crap crazy and adopted Supply Chain Management in the late 1990's. As those jerks have gotten more and more of a foothold we get stupider and stupider. I'm going to see if I can get permission to include that video in my 5-day class.

David Simpson, PE
MuleShoe Engineering

"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.

 

[MiketheEngineer]

We do a lot of work for maybe the largest oil/gas company in the world - millions of dollars. They made something like $40 BILLION dolars in profits last year!! They came to us and wanted a 10% rebate. Thank god I wasn't in those talks ............... Somebody would have certianly been hurt!!!

 

[zdas04]

When a similar company (I think the third largest) told me that they wanted me to roll my prices back to 2003 levels I told them no (even though I had not had a price increase since 2003). A VP called me a few days later and demanded that I roll my prices back and I asked him if he had reviewed the file. He said he didn't have to because Peter had told him that I wouldn't. I said look at the file and hung up on him. That was the last call. I guess he was too embarrassed to apologize for being a jerk.

David Simpson, PE
MuleShoe Engineering

"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.

 

[JohnRBaker]

We do a lot of work for maybe the largest oil/gas company in the world - millions of dollars. They made something like $40 BILLION dolars in profits last year!! They came to us and wanted a 10% rebate.

I hope you weren't surprised. After all, these same "large oil/gas companies" are getting tax credits taken from the pockets of taxpayers in this country despite their "$40 BILLION dollars in profits", and none of us were present when that deal was being discussed either.

John R. Baker, P.E.
Product 'Evangelist'
Product Engineering Software
Siemens PLM Software Inc.
Industry Sector
Cypress, CA
Siemens PLM:
UG/NX Museum:

To an Engineer, the glass is twice as big as it needs to be.

 

[zdas04]

JohnRBaker, Give me a freaking break. Those oh so very horrible tax credits represent actions taken by Congress to create an incentive for the industry to do something that had too high a risk of failure for the industry to pursue without incentives. Even a very profitable company in a very profitable industry must balance risk and reward before committing capital to a project.

For example, had Congress not created the Section 29 Tax Credit in 1988, the industry would not have invested billions of dollars to learn that you could profitably produce coalbed methane (CBM). If we hadn't learned how to produce CBM we wouldn't have embarked on Shale Gas development (many of the techniques that were created for CBM and proved out in CBM fields have made Shale Gas possible). Based on 2008 trends, without Shale Gas development natural gas prices in the U.S. today would be on a par with Japan (around $24/MSCF) instead of being the lowest in 40 years and a major factor in the economic recovery. Without Shale Gas we wouldn't have developed Shale Oil--when the Bakaan Shale Oil field came on line, the U.S. imported over 70% of domestic consumption, today it imports around 45% of domestic consumption.

So without that particular tax credit it can be argued that the U.S. would currently be in the midst of an actual depression with energy costs reaching 40-50% of most household's income. Dang those tax credits are simply evil aren't they?

If Congress and the White house had EVER created a coherent energy policy then that policy would have been a more direct method of exercising influence over the industry. The haven't, so their influence is limited to those things that they can incentivize through tax relief. That was a choice by our elected officials. Corporations owe it to their stockholders (who are mostly pension funds and other retiree aggregations) to reduce their taxes in every LEGAL way possible. If CONGRESS passes a tax credit to cause someone or some corporation to do something which has a weak risk/reward balance on its own, then companies who undertake that action have a RESPONSIBILITY to file the tax credit. Not filing it would be a breach of fiduciary responsibility and would certainly subject the officers of the corporation to civil action by the stockholders.

David Simpson, PE
MuleShoe Engineering

"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.

 

[JohnRBaker]

I see someone has been drinking the Kool-Aid. Well why then shouldn't the alternative energy industries also be given virtually permanent tax subsidies? Aren't they also deserving of an "incentive...to do something that had too high a risk of failure for the industry to pursue without incentives."

And how can you possibly make a statement like, "Even a very profitable company in a very profitable industry must balance risk and reward before committing capital to a project." as part of an argument for continuing tax credits when the country is facing a debt crisis so serious that people are being warned that the social safety nets that they've been paying into all of their lives, such as Social Security and Medicare, will need to be cut-back so as to bring future budgets into balance?

If you honestly believe that's an appropriate tax policy, are you also willing to give tax subsidies to other "profitable industries" such as the fast food industry, overpriced coffee houses, software developers, or companies which manufacture high-tech gadgets like Androids or iPads? Aren't they also taking a risk every time they open a new store or launch a new program?

As for what Congress and the White House has or has not done, you can't possibly believe that the millions (if not billions) spend each year by the oil/gas industry on Washington lobbyists is being spent to promote "a coherent energy policy" which takes into consideration the needs and concerns of all the parties involved.

John R. Baker, P.E.
Product 'Evangelist'
Product Engineering Software
Siemens PLM Software Inc.
Industry Sector
Cypress, CA
Siemens PLM:
UG/NX Museum:

To an Engineer, the glass is twice as big as it needs to be.

 

[zdas04]

First, there is no such thing as a "permanent" tax break. Every single one of them has an expiration date, and many have been promulgated for many industries and then cancelled for various reasons.

I had to laugh at

Well why then shouldn't the alternative energy industries also be given virtually permanent tax subsidies?

Since without massive tax incentives that industry would not even exist (other than its proper place of providing retail energy to facilities remote from the power grid). The largest maker of solar panels in the world is BP (one of the largest of those evil oil companies) and when I retired from that company in 2003 (disregarding tax incentives) they hadn't ever made a dime selling solar panels, they stayed in the business because the tax incentives made basically all the income from sales, free of taxes which allowed them to legally avoid taxes on other, profitable activities. Solyndra failed because they didn't have a profitable sideline to apply their 100% tax incentives to. This industry has massive tax credits PLUS people who purchase the equipment get alternative energy credits that can equal the cost of certain equipment so the net cost of purchasing this junk is zero or near zero.

And speaking of tax credits, did you deduct your home mortgage interest (deductible because Congress felt that home ownership was stabilizing and revenue producing) and your contribution to your IRA or 401k (deductible because Congress felt that retirement savings reduced the cost of maintaining the aging population) from your taxes last year.

The debt crises has come from the federal government grossly exceeding its Constitutional mandate and recklessly spending money without a plan for how they were going to pay it back. Tax incentives for corporations actually improve the Federal Government's balance sheet since corporate taxes are revenue negative (i.e., if the corporate tax was eliminated in its entirety, federal income would increase substantially). This is because corporations have to spend the money that comes in--they execute capital projects, they employ flesh and blood humans, they pay dividends, they invest in other firms, all of which increases the amount of money individuals must pay taxes on. This multiplier effect is around 6-7 for non-tax spending (i.e., every dollar that is spent in the free market is "re-spent" within the economy 6-7 times). The multiplier for tax collection is 2-3 and dropping as more and more of the tax revenues is going to service debt held by foreign entities.

This negative contribution is even worse for Oil & Gas because every dollar the industry spends on taxes (and that number is well over a trillion dollars a year even with the tax incentives you abhor) is a dollar that doesn't get invested in Oil & Gas exploration and development. The U.S. Government is the largest mineral owner by a wide margin, so when a field like Prudhoe Bay makes a million barrels of oil, and that oil sells for $100 million, the U.S. Government gets something like $12.5 million in mineral royalties. The net income from that $100 million is probably around $20 million so the income tax would be something like $9 million. If that $9 million went into further exploration and it was successful then the royalty income from the new supplies of hydrocarbons would be orders of magnitude higher than the original income tax.

The Federal Corporate Income Tax is simply a way for the Government to influence investment directions of an industry. The Congress' track record in this area is awful, but they keep wanting to try, bless their hearts. For example, ethanol is added to fuel as an oxidant. It is not a particularly good oxidant and it is quite hydrophillic and results in accumulation of water in supply tanks. The only reason that the mediocre fuel additive exists is because tax incentives to the farmers and refiners of ethanol make is marginally profitable to produce. If those tax incentives went away and were replaced by emissions standards then the industry would have been working diligently over the last 30 years to find an oxidant that made economic and environmental sense, but with ethanol selling for depressed prices (due to the tax credit) and the government mandate that ethanol must be added there is no economic incentive to bring a new product to market.

Every one of the industries you mentioned enjoys many tax credits and other incentives. Starbucks gets tax credits for opening stores in blighted communities and paying salaries to "disadvantaged" workers (if they hire an Indian and pay more than the minimum wage they get a $4000 tax credit over and above the deduction for the actual salary and benefits). The smart-phone industry gets massive investment tax credits and huge research tax credits. On a percent-of-revenue basis the software industry gets more tax incentives than Oil & Gas, but the Democrats and their puppy-dog media have focused on Oil and Gas as inherently evil.

This is especially sad since the Oil & Gas industry will be the reason that the economy flourishes. We are coming out of the recession solely because the Bakaan and Eagle Ford Shale Oil projects have cut our imported energy bill in half while the Shale Gas has provided the energy to fuel the economy at 10-25% of the world price for natural gas. Further, if the government will get the hell out of the way of exported energy and allow LNG exports, the industry will lower the world natural gas price by 20-30% while allowing the Federal Government to pay off the national debt in less than 5 years.

I just looked up Exxon Mobil's 2011 Financial Statement and on Page F-15 they show 2011 income tax was $31 billion for an effective tax rate of 46% and total taxes of $108 billion on $41 billion in after tax income. Seems like a whole bunch of "fair share" to me.

The industry certainly spends many billions of dollars trying to be heard in Washington. That is a fraction of what the Film industry, the farm industry, the Unions, the environmental NGO's, or even the software industry spends, but still serious money. That is the way this corrupt game is played, and if Congressmen were not subject to be influenced, then companies and industries would not be forced to try to influence them before some other special interest group was able to come in and stab them in the back.

David Simpson, PE
MuleShoe Engineering

"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.

 

[JohnRBaker]

"The debt crises has come from the federal government grossly exceeding its Constitutional mandate and recklessly spending money without a plan for how they were going to pay it back."

Then it would appear that we both can at least agree that starting an illegal war which has drained the resource of this nation, both in terms of blood and money, was a violation of the Constitution, eh?

"This negative contribution is even worse for Oil & Gas because every dollar the industry spends on taxes (and that number is well over a trillion dollars a year even with the tax incentives you abhor) is a dollar that doesn't get invested in Oil & Gas exploration and development."

But you could make this argument for ANY American company that is paying corporate taxes. Are your saying that we should just stop collecting taxes from corporations altogether simply because there's a chance that they might spend more on R&D if we do? Then why can't I make the argument that if I was able to avoid paying my taxes that I would have more money left over to buy stuff which in turn would help to employ more people? After all, do you think that the ONLY dollars which generates a multiple return are those which are spent by an oil or gas company? Are not the dollars I personally spend at the grocery store or Home Depot, aren't these also going to have a multiplying effect within the economy?

I have to admit though, you sure do a good job of making the oil and gas industry sound like they'd be on their last legs if it wasn't for tax considerations that they have received, and CONTINUE to receive, courtesy of the rest of us who do pay our fair share in taxes each year. Perhaps you've wasted your career as an engineer and might have done much better working for one of those K-Street lobbying firms which are taking all of that oil and gas money to do what you're doing here for nothing ;-)

John R. Baker, P.E.
Product 'Evangelist'
Product Engineering Software
Siemens PLM Software Inc.
Industry Sector
Cypress, CA
Siemens PLM:
UG/NX Museum:

To an Engineer, the glass is twice as big as it needs to be.

 

[zdas04]

Talking about drinking the Kool-aide. You are putting words in my fingers that I never typed or even thought. I think that corporations are not persons (in spite of the outrageous Supreme Court decision to the contrary) and that all corporations should be free of taxation without representation. All corporations in all industries.

Why are you talking about illegal wars? Both wars that were initiated in the last administration were sanctioned by Congress and were absolutely Constitutional. Now if you want to talk about illegal incursions into sovereign nations we did send armed troops into the country of Pakistan and several other countries without the advice or consent of Congress which is un-Constitutional. Oh yeah, that was done during the current administration so it is OK.

No, the point is that the Federal Government makes more money from mineral royalties than they make from income taxes, so increasing taxes on the industry reduces their income more than it does in other industries. If they eliminate the energy-efficiency or manufacturing or R&D credits from the software industry then the multiplier in the economy would be negative 3-4, the same thing in Oil & Gas would be negative 3-4, but the Federal revenue multiplier would be 9-10 because of lost royalties.

I never meant to imply that the industry would "be on their last legs" without the tax incentives. I don't think that is true. I look at the industry investment direction of U.S. Oil & Gas firms in 1986, and 20% of the worldwide investment was in the U.S. (80% was in other countries with more favorable tax codes). With the Section 29 tax credits in 1988 that moved to nearly 40% in the U.S. In 2008, U.S. firms invested about 70% of their capital in the U.S. The money goes where it can have the most leverage. The tax incentives have an impact on that leverage. Without the tax incentives the investment never would have come back to America and the recent recession would have been a much bigger thing.

Energy drives the world's economy, and beating that horse to death is a suicidal activity. Don't believe me? What did you spend on home heating, electricity, and motor fuel last year? 15% of your take home pay or so is common in this country. In Poland it is closer to 60%. If you lowered your disposable income by 45% would that affect your standard of living? You bet it would.

David Simpson, PE
MuleShoe Engineering

"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.

 

[JohnRBaker]

I still say that you missed your calling... Those lobbyists make a really good living doing what you've been doing for free these last few hours ;-)

John R. Baker, P.E.
Product 'Evangelist'
Product Engineering Software
Siemens PLM Software Inc.
Industry Sector
Cypress, CA
Siemens PLM:
UG/NX Museum:

To an Engineer, the glass is twice as big as it needs to be.

 

[dwallace1971]

I think we should definitely stop collecting taxes from corporations.

"On the human scale, the laws of Newtonian Physics are non-negotiable"