Excellent concise article by William Lauderback, executive vice president of the American Conservative Union on why “windfall Profits Tax” on Big Oil is a Bad Idea.
Some politicians like Democrat Ohion Rep Dennis Kucinnich has long advocated a “windfall profits tax” on Big Oil. As we have argued many times here at Pundit Review, this idea is ill-conceived and would be destructive to the American economy overall. It also contradicts the basic economic principles.
In the first place, adding more taxes to the production of gasoline will obviously only serve to send already high prices even higher. That’s not going to help anything. In the second, suggesting we essentially punish oil companies for high prices at the pump ignores the realities of the oil industry, including how prices are set and who actually owns the oil companies in the first place.
Oil companies don’t pull prices out of thin air; they are determined by open trading on the international market. Saddling U.S. producers with extra taxes makes it harder for them to compete with foreign companies, degrades the value of domestically produced oil and increases American importation of foreign fuel. It’s essentially the equivalent of granting a U.S. government subsidy to foreign oil companies.
Also, oil company profits are not just stored in a big vault somewhere; they are reinvested in exploration and production, and paid out as dividends to shareholders. These are the people that really own U.S. oil companies, and they might not be who you think they are.
Oil stocks are extremely popular with both individual investors and fund managers. In fact, if you have a 401(k), own a mutual fund or participate in a retirement plan, the chances are excellent that you yourself have some ownership in an oil company.
As I have said on many occasions. Let the free market work. Price controls (which is essentially what the windfall profits tax is) always impede the free market from functioning effectively and efficinently. The answer to high energy prices is to not only conserve (decreasing demand) but more importantly to increase abundant supply. It is axiomatic that when you tax something you get less of it. If you want more plentiful supplies of natural gas and crude oil, then it stands to reason that you should tax development and production less. If anything, we should demand that the government abolish the federal and state gas taxes they impose and extraneous ethanol and additive requirements. Additionally, we must call on liberal Democrat politicians to cease obstructing and impeding efforts by the President and other Republicans in Congress to become more energy independant by drilling in ANWAR and the outer continental shelf for oil and natural gas. In fact, if the president and congressional Republicans were actually interested in becoming more popular with the public they would support a presidential executive order to open up ANWAR and other domestic locations and begin drilling today and dare the Democrats to stop them from reducing prices at the pump. I won’t hold my breath though.