Windfall tax blather
I wrote yesterday about Obama’s opposition to the suspension of the federal tax on gasoline in a bit of political theater by Clinton and McCain. but Obama’s plan for lowering gas prices is even more laughable. It’s pure class warfare – a windfall tax on oil companies to punish them for record profits. From the Wall Street Journal Review and Oulook;
Mr. Obama is right to oppose the gas-tax gimmick, but his idea is even worse. Neither proposal addresses the problem of energy supply, especially the lack of domestic oil and gas thanks to decades of Congressional restrictions on U.S. production. Mr. Obama supports most of those “no drilling” rules, but that hasn’t stopped him from denouncing high gas prices on the campaign trail. He is running TV ads in North Carolina that show him walking through a gas station and declaring that he’ll slap a tax on the $40 billion in “excess profits” of Exxon Mobil.
The idea is catching on. Last week Pennsylvania Congressman Paul Kanjorski introduced a windfall profits tax as part of what he called the “Consumer Reasonable Energy Price Protection Act of 2008.” So now we have Congress threatening to help itself to business profits even though Washington already takes 35% right off the top with the corporate income tax.
In the Senate, Li’l Chuckie Schumer wants to do the same according to the Plattsburgh Press Republican;
U.S. Sen. Charles Schumer is proposing a windfall-profits tax on oil companies.
“Once again, consumers’ pain is Exxon’s gain,” Schumer said in a statement.
“Oil companies are wracking up obscene profits left and right while American families are stretched to the limit by skyrocketing gas prices. It’s high time for big oil to pay its fair share. It’s time for a tax on their windfall profits.”
Schumer’s measure, co-sponsored by Sen. Sherrod Brown (D-Ohio), would levy a tax on the windfall profits of American oil companies and foreign companies with substantial operations in the United States in 2008 and 2009.
The legislation provides a formula for calculating the earnings that are subject to the tax.
Oil companies would calculate their annual profit for each year from 2003 to 2007, subtract the year that saw the greatest profit and take an average of the four remaining years.
That figure, plus 10 percent, would represent the “reasonably inflated average profit.”
And how does that lower gas prices? What does it prove? How does it provide relief for consumers? Well, it doesn’t – it just fills government coffers and it drives the price of gas up because the oil companies will just pass along the cost of the tax to us. The Wall Street Journal notes that Jimmy Carter and the Democrat Congress tried this in 1980;
We tried this windfall profits scheme in 1980. It backfired. The Congressional Research Service found in a 1990 analysis that the tax reduced domestic oil production by 3% to 6% and increased oil imports from OPEC by 8% to 16%. Mr. Obama nonetheless pledges to lessen our dependence on foreign oil, which he says “costs America $800 million a day.” Someone should tell him that oil imports would soar if his tax plan becomes law. The biggest beneficiaries would be OPEC oil ministers.
So why would Obama and the rest of the Democrat Congress propose this if we all know it’ll fail? For the same reason a man drowning in quicksand flails his arms and legs – just because they feel like they should do something while we’re sinking.
The Wall Street Journal reports that help is on the way, though;
Late this week, a group of Senate Republicans led by Pete Domenici of New Mexico introduced the “American Energy Production Act of 2008” to expand oil production off the U.S. coasts and in Alaska. It has the potential to increase domestic production enough to keep America running for five years with no foreign imports. With the world price of oil at $116 a barrel, if not now, when? No word yet if Senators Clinton and Obama will take time off from denouncing oil profits to vote for that.
Five years without imports – hmm that would drive the price down, which, in turn, would drive down profits, too. Naw, it might actually accomplish something, Democrats won’t vote for that.
