Today's Washington Post joins the Wall Street Journal in editorializing against the discredited idea of windfall profits taxes:
Mr. Obama's proposal to take some of this money from Big Oil and distribute it, like Robin Hood, to hard-pressed American families doesn't make economic sense. To be sure, Mr. Obama would not copy the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. enacted under President Jimmy Carter in 1980, which netted $40 billion before its repeal in 1988 while imposing huge administrative burdens — and retarding domestic oil production. Mr. Carter's tax was levied per-barrel, so it directly increased the marginal cost of producing crude — and made figuring out which barrels to tax ridiculously complicated. Mr. Obama wants a surtaxA surtax is an additional tax levied on top of an already existing business or individual tax and can have a flat or progressive rate structure. Surtaxes are typically enacted to fund a specific program or initiative, whereas revenue from broader-based taxes, like the individual income tax, typically cover a multitude of programs and services. on net oil company profits above a "reasonable" level. The tax would be set high enough to raise $65 billion over the next five years, and the revenue would fund a one-shot tax rebate that Mr. Obama would like to give to families and individuals this year.
Making Exxon surrender money that is now falling into its lap would not necessarily affect its longer-term plans or incentives. Indeed, some of Big Oil's "windfall" already will go to the government: The more profit the companies earn, the more corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. they pay. But to add a five-year tax increase on top of that to pay for a one-year gift to voters would, indeed, increase the cost of doing business. That cost would be passed along in forgone investment in new production, lower dividends for pension funds and other shareholders, and higher prices at the pump — thus socking it to the consumers whom the plan is supposed to help. If oil prices fall, there might be no windfall profits to tax. Then the Obama rebate would have to be paid for through spending cuts, taxes on something else or borrowing.
Read the rest here. See here for a post where we note that oil companies currently pay about 46 percent of their profits to Uncle Sam.
Confiscating every penny that oil companies earned in profit this year wouldn't be enough to pay out $1,000 per household. Senator Obama should stand clear of such gimmicks.
Read our thoughts on windfall profits taxes here.
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