During the campaign and as late as August 1st, Senator Obama proposed to provide $500 per person or $1000 per family to supposedly compensate America for the burden of high gasoline and home heating oil prices for a 4-month period. That will cost about $75 billion. I know how that makes sense to buy votes for an increasingly socialist America. But of course, it does not make sense for capitalism.
For years I have argued against the concept of a “windfall” or “excessive” profits tax. So I won’t repeat the reasons for my opposition now… just search my blog for “windfall” and read through all my prior articles.
If you are an Obama supporter, do not think this is a political attack on him. It is an attack on the concept - regardless of who proposes it. McCain’s summer gas tax holiday proposal was also stupid. Look at the date of the first post on this topic called Taxes As Punishment - it was May 3, 2006, 9 months before Sen. Obama declared his intention to run for President.
Here is what I said over 2 years ago:
Listening to Sen. Durbin on “Meet the Press” on Sunday and Sen. Dorgan this morning on CNBC was concerning. During his appearance, Senator Durbin said,
“I mean, the bottom line is this: If you do not tax these corporations at this level they will continue to run up the profits to sky heavens.”
And later he said,
“But it also means two other elements we shouldn’t overlook: punishing profiteering. All the market forces not withstanding, if the oil companies still insist on these outrageous profits, the consumers will lose and the American economy will lose.”
In a country that is supposedly based upon capitalism, I find Senator Durbin’s comments to be contrary to that fundamental underpinning of our country, and sadly, I find the masses of Americans who are piling onto this philosophy even more disturbing. Creating “separate and unequal” tax policies for any particular industry (or companies within an industry) just chips away at capitalism and when that happens, inevitably “consumers will lose and the American economy will lose.” The concepts that profits are evil and taxation should be used as a punishment to change an industry’s behavior are scary.
Senator Dorgan echoed the danger of energy company profits this morning on CNBC and he even has a handy calculator of “windfall” profits on his website. For as long as I have heard this term, I have never seen anyone willing to define what an “excess” profit is so I credit Senator Dorgan for being so bold. He suggested that windfall profits are those in excess of $40 per barrel. Do you realistically see $40 per barrel as a baseline for the future?
Specifically, his legislation imposes a 50% excise tax on the “windfall profits” of major integrated U.S. oil companies. I find it interesting that only big oil companies are being singled out. I guess small oil company profits are not “outrageous” even though they may be more profitable on a percentage basis than the integrated oil companies. Which begs the next question - how do you define “big”? But enough of the fine details, the other troubling aspect of this bill is hearing Senator Dorgan explain how his windfall profit tax is different than the last time Congress took this step which actually resulted in lowered production. A provision of this bill would exempt windfall profits from the tax if they were used to increase oil and gas supplies, renewable fuels and domestic refining capacity. This is the part that is supposed to assure you that these taxes will actually force the companies to do what the politicians want them to do. The last part of the bill is about as close to Robin Hood behavior as you can get. The revenues of this bill would be returned in the form of a rebate check sent to each individual American taxpayer over 16 years old. Giving away this money to people whether they actually drive a car or not is “outrageous” to me.
I doubt any windfall profits legislation will be passed by the Congress, much less signed by President Bush. However, the fact that it has gotten so much serious consideration should cause all of us to reflect on what we are willing to sacrifice - an extra dollar per gallon at the pump or capitalism.
For me, this isn’t about the presidential election or politics. It’s about economics... capitalist economics... not political economics.
If you are a regular reader, you’d know that I am not a fan of the Bush administration’s Monetary And Fiscal Failure and the fact that There Are No Cheap Solutions to our mess.
However, Obama’s Windfall Profits Proposal is as dangerous as many of our current administration’s failed policies. Not only does it replace capitalism with socialism, but it will not lower oil or gasoline prices. It is wealth redistribution without any equitable method since not everyone drives the same amount or consumes the same amount of home heating fuel, but everyone gets the same “rebate.” And despite the great intentions, taking profits from “big oil” will not guarantee successful innovation with the cleaner and cheaper alternative energy we so desperately need. Lastly, despite Obama’s promise to pay for his $75 billion “emergency” giveaway with his “excessive” profits tax, I don’t see how that promise will be so easy to keep. Not that politicians keep promises.
But if you care about such things… do the math. The plan says (.pdf) that “Barack Obama supports imposing a windfall profits penalty on oil selling at or over $80 per barrel.” Think about that… $80 per barrel at a rate of 20%. Obviously, if oil declines towards $80, almost no windfall profits tax revenues will be obtained. Regardless of the market price of oil, the only way this ridiculous giveaway would ever generate revenues large enough to cover its cost would be to keep changing $80 to whatever Obama feels is a “fair market” price, increase the 20% to a tax rate that Obama feels generates “fair” profit or for consumers to experience significantly higher oil and gasoline prices. All three of these choices suck and all three seem likely to me if this proposal becomes law.
This article has 47 comments:
The only tax policy that will help our energy problem is to raise taxes that the consumer pays for energy. This will reduce use and encourage conservation. Of course, no politician who wants to keep their job will propose this.
buyitcheap - where did you find that tax proposal for taxing dividends in an IRA/401K?
I agree that there is nothing wrong in companies gaining profits because profitability is an essential part of our capitalist system. However, I do think that an examination of oil company profits over many years may show that they have been excessive. I do believe that oil companies have been guilty through lobbying and their particular close relationship to the White House of holding America hostage to oil. I see no evidence that they have invested a significant amount of their profits over the past several years in alternative energy research and development or drilling in the millions of acres of leases that they currently hold in the United States.
The United States had an opportunity when we confronted our first energy crisis thirty years ago to do something constructive about lessening our dependence on foreign oil. We also knew at the time that U.S. oil production had peaked in 1971, so there should have been a sense of urgency. In fact, the Carter Administration did push conservation to the American people and launched a number of alternative energy R&D programs which were subsequently scrapped by President Reagan. I do hold Big Oil accountable for the fix we find ourselves in right now.
Redistribution of wealth is their credo!
Just look at California and you will see the outcome of such foolishness!
Taxing corporate profits means "LESS JOBS" not a good thing! Duh!
When 95% of the world population is suffering and only a handful of oil companies are profiting, this is a scandel not capitalism. When politicians become part of the oil companys' bodyguards, people have no choice but to replace the politicians and restore true capitalism. Naturally, getting some of the windfall profits back is a true capitalistic act.
You seem to be confusing 'excessive profits' due to 'creative accounting' with 'excessive profits' due to favorable market conditions.
In a short comment to Tim, I would like to say that companies that over charge the government are perfectly legal. The investigation should have been done with the buyers to see who was pocketing the overcharge.
Corruption in government has been rampant for years. What we need is to get Sarah involved and start cleaning the mess in Washinton up. Hopefully she will get a good start before they know she is for real. Then the next problem will be, is how big do we have to enlarge the prison system to accommodate them.
Socialists and liberals hate competition. I think it's due to a fear of failure...the rest of us would rather man-up and face the reality in front of us. It's also very clear to me that they don't understand markets, but that's no surprise, given their allergy to competition.
In addition the banks are being bailed out by tax payers to the tune of several millions.
There is full blooded SOCIALISM for the corporations losses, but capitalisim for the masses.
Grow up little boys and girls. Subsidies to corporations , agriculture etc run into several millions, full blooded socialism
The liberals are just plain stupid!!!
For which this country has paid a terrible price, a price which George W. McCain is determined to continue while he bleeds our economy and our constitutional freedoms into the ground.
they think you want to hear, it may or may not happen when elected;
Secondly, before any wild idea becomes law, 435 other nuts must
also pass on it! Likelihood of all these wild statements making it
are probably 50-50............not in our favor of course :-)
money.cnn.com/news/spe...
www.cnn.com/ELECTION/2...
elections.foxnews.com/...
bulletin.aarp.org/your...
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Second question - why hasn't anyone broken down, for the public, what these excess dollars mean. The last time I did it, Exxon's excess profits, if returned in the form of lower gas prices, would have reduced the price of gas $.05. A freaking nickle. Wake up people. If anything, force the oil companies to increase their investments in alt energy and cleaning up their plants with the excess dollars. Any dollars we secure from the oil companies would be meaningless to the US economy, but can be put to good when aggregated by the oil companies.
Politicians need to be honest with the American people about our current energy situation and stress conservation and the development of alternative energy.
Bailouts for Banks and brokerages are just smart measures, and so, so capitalist. Listen to Gross: he loves socialism for the rich:
www.bloomberg.com/apps...
Freddie - Socialism is any mindless redistribution of resources, in a Marxian way - to each according to their needs, regardless of their minuscule contribution to their or the common welfare - in other words, the Democratic party
Most importantly one can not have a truly democratic society
On of the reasons corporations maximise profits is due to the evel of interest.
That is what true socialist want,Free Trade and a Free Market do not confuse socialism with Marxism
Let's take a look at the author's comments:
Rebates: "I know how that makes sense to buy votes for an increasingly socialist America. But of course, it does not make sense for capitalism."
And the author proclaims neutrality when it comes to politics? Please!
Re: Taxing Windfall Profits-
"The concepts that profits are evil and taxation should be used as a punishment to change an industry’s behavior are scary."
Actually wise public policy and regulation of a zealous fixation on all profits as good, the public trust be damned is scary. If the author had taken the time to analyze the entire Obama energy policy, his argument might have carried a bit more weight. Facts ommitted include:
1. Oil companies are being rewarded with subsidies on more than 350 current oil exploration contracts where there is little likelihood that they will ever drill. The facade of opening up more areas to drilling as increasing supply is a gambit that will result in simply more subsidies while those areas that are explored have no requirement that the oil produced goes into American gas tanks.
2. Oil companies have largely chosen to bank their profits, rather than investing in more equipment or exploration. They have little incentive to increase supply. Their profits as an industry group will simply diminish.
3. The part of Obama's plan that the author failed to mention is diverting these subsidies and windfall profits into support for alternative energy strategies. Even T. Boone Pickens agrees that the slick path of Big Oil is behind us. Wise public policy should focus on encouraging investment and tax these behemoths that refuse to move in that direction.
B) Tim Miles comment at 2:31 PM is very accurate and not recognized by the majority of Americans.
While I agree with your logic, an across-the-board pump hike will do more damage to your Alabama rural neighbors that the Beverly Hills Hummer II crusier. If you agree with my logic that oil subsidies don't work, why not give the supply side tax a try?
Re: crimson sky and davidlivonia. You need to read the details of the Pickens Plan beofre commenting. It is both about wind and nat gas vehicles:
1. Wind electric energy conversion of current natural gas fired power plants by about 15-20% in ten years.
2. Diversion of that nat gas supply to new primarily COMMERCIAL vehicles (heavy equipment and trucks) through re-tooling of these engines. Nat gas is a more efficient, cleaner fuel and can adequately power heavy equipment engines. See the Port of Long Beach model in his plan.
Re: Tedspick
Frankly, Ted I'm a retiree as well. It's the attitude that "all I really care about is my 401-K" is a tired response that has only brought us the selfish me-first results of a failed public policy based on us catching the trickles of trickle-down econmics. In my opinion, we've been in a long drought with very few trickles. :)
Just how many ultra rich sports team owners built their own stadiums with their own money? Yea, free market my ass.
The entire tax structure of the US favors one type of capital over others - real estate. You can't roll over your stock in an exchange the way you can gains in real estate. It is ALL ABOUT the allocation of capital and tax policy with regards to that. So, back off the ideological crap.
Oh yes, Obama's idea sucks but it comes from a recognition that "the other side" has had a free ride for many years. They are only striking back - so what.
If we don't raise taxes AND cut spending we're screwed.
The politicans are all the same. If we don't demand that they change we deserve what we get.
Since when is the Oil Industry a free market industry? If Pizza Hut could somehow figure out a way to sell so many pizzas and make 100's of billions in profits then I would agree totally with the author and his supporters. That's true Capitalism. Either people by their pizza from Pizza Hut, some other competitor, OR NOT AT ALL. There is very little government subsidies for the Pizza Industry (if any at all.)
HOWEVER, the Oil Industry, unlike the Pizza Industry, is NOT BASED ON CAPITALISM. We pay for the army to protect oil fields - both monetary and with our lives, we pay for special tax breaks and credits for the Oil Industry, we pay for the roads which makes driving mandatory so the Oil Industry has an unbelievably higher demand for their products, we pay special real estate tax breaks so those same people are encouraged to buy more homes further from their own jobs, we pay and we pay and we pay.
Oil is NOT Pizza! Pizza is no necessary to live. In our current national context Oil IS! Pizza is not a comodity or utility but Oil IS!
All this free market BS really fires me up! Let the oil companies re-imburse us for the massive highway systems, real estate tax breaks, cost of defending oil producing countries, etc. etc. Free market my a$$.
Let's stop defending countries that produce oil. Let's stop paying for building roads. Let's stop all policies that discourage public transportation and encourages more car driving. Let's give tax breaks only to Oil's Competitors! Then we'll see how much they make. If they're making profits because of our easy "set up" for them to do so then let's pull the rug out from under them so their support system collapses. Then let the REAL FREE MARKET PREVAIL.
You phony capitalists wouldn't last 5 minutes with a real level playing field competition. You need big government on one hand and rail against it on the other. Hypocrites.
Let's make oil a utility and then continue to invest so they can become obsolete and when that's done let them come out on the open and free market and COMPETE but only after we've spent as much on other energies as we've spend governmentally on OIL.
That's the truth.
And no .... I cannot stand Obama.