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.