Dogs and Cats Living Together (Windfall Profits Edition)

The Washington Post's editorial board agrees with our own Shikha Dalmia that attempting to tax "windfall" oil profits is a bad idea:

[P]rofits are a spur to new investment; taxing them reduces the return that companies will expect to make on new oil finds or refineries, with the result that there will be less oil and gas available in the future and hence higher prices.

Moreover, taxes on windfall profits tend to exacerbate dependence on imports, because companies generally make windfall profits only from their U.S. drilling operations; contracts for drilling foreign oil are usually structured so that the windfall from high prices is captured by the foreign government. As a result, windfall taxes penalize oil drilled in the United States. A study by the Congressional Research Service found that the last such tax imposed on the oil industry, between 1980 and 1988, reduced domestic production 3 to 6 percent and increased imports between 8 and 16 percent.

Comments

[Ruthless]

Let's try to keep a straight face, and propose a 50 percent windfall profits tax on federal income tax refunds. Those are windfalls, aren't they?

[fyodor]

companies generally make windfall profits only from their U.S. drilling operations

Note to joe: this is how oil companies make higher profits when oil prices go up.

[MP]

I bet that if taxing profits met with WaPo's policy objectives, they'd be all for it.

[metalgrid]

How about we start with cutting subsidies and corporate welfare?

Yeah, didn't think so.

[R C Dean]

This is such a comprensively stupid idea I don't see how our elected representatives can possibly resist it.

[Viking Moose]

Well Spake, RC. Well spake.

[thoreau]

I concur with VM and RC.

[nmg]

How about we start with cutting subsidies and corporate welfare?

Yeah, didn't think so.

libertarians and reasonoids are almost universally in favor of cutting "subsidies and corporate welfare". Are you suggesting we're not?

nmg

[fyodor]

nmg,

While metalgrid will obviously have to speak for himself, I'm hoping/assuming that he meant that cutting subsidies would be a more reasonable way to "punish" the industry than taxing it more but that it's unlikely politically.

[arny]

What's so ridiculous is how the politicos are basing all of this on gross profits. They say" The oil company made 10 billion dollars, give some back". Well, if you have 100 billion in sales and you make 10 bill. in profits that's only 10% which is standard business success.

[fyodor]

arny,

Just to be the devil's advocate, however stupid that damn devil is, the basis of their ire is that profits have gone UP. Yes, they're ignoring that gross margin is still not especially spectacular, but they think it's "unfair" that profits should be going up at a time that costs to consumers have also gone up. At a visceral level, it seems "unfair" that oil companies should be doing better at a time when their customers are doing worse. Slightly more thoughtful critics, like joe, say that it doesn't make sense for profits to go up when oil prices go up because oil is a cost of their business. If joe has responded since I pointed out to him that oil companies are also producers and that's why their profits go up when the price goes up, I haven't seen it. Anyway, while I thought you didn't quite do their arguments justice, their arguments are still pretty dumb.

[fyodor]

Maybe we should increase their taxes by the exact amount of their subsidies! 🙂

[R C Dean]

I'm suggesting that cutting subsidies and corporate welfare has broad approval from the bases of the dems, reps and libs, yet we don't see it happening. It's because our "elected" reps are in the pockets of crony business.

Well, yeah, but its also just another example of public choice theory in action.

[Blaine]

What started the hearings was record profit. Record profit happened while we were paying increasing prices. They should be charged with a crime not charged with a tax. Profits are the fuel that runs our economy but taking advatage of the situation is wrong.

[fyodor]

Blaine,

Uh... exactly what "crime" should they be charged with??

And exactly what situation are they "taking adva[n]tage of"? You mean the one in which supply and demand has pushed prices up? I hope the next time you ask for a raise your boss tells you, "Well, we wouldn't want you to be taking advantage of the fact that your services are very valuable to this company!"