Obama’s Bad Windfall Tax
Now, I’m usually all for more tax cuts. Individuals and corporations have better local knowledge and incentives to spend money better than politicians in state capitals and Washington, D.C. However, I’m not thrilled with a gas tax holiday. First, it isn’t going to happen. The only ones pushing it are Sens. Clinton and McCain on the campaign trail. Speaker Pelosi’s office has indicated it won’t come up for a vote in the House. Second, even if it did pass, three months without a federal gas tax isn’t a whole lot.
I do disagree with those who think the oil companies wouldn’t reduce gas prices. Consumers are closely watching prices. Even a penny or two decrease will get someone to drive to another gas station. I can see stations, refiners, and oil companies undercutting each other to grab market share.
The third problem with a holiday is the gas tax goes to the highway fund. A spokesman for the road builders, an special interest with a definite agenda, said a holiday would put more strain on the depleting fund. Even McCain thinks the funds would have to be taken from the general treasury to fill the hole. In the end it’s moving numbers in the federal budget that tinkers slightly with overall tax incidence.
Then there’s Sen. Barack Obama’s idea of “fixing” high gas prices: a windfall-profit tax on oil companies.
Obama proposes oil companies be taxed on windfall profits from oil sold at or above 80 dollars a barrel, and the revenue be used to help relieve the burden of rising prices on working people, according to his campaign.
Yeah, that really did a good job for Jimmy Carter. Amity Shlaes notes a NY Times article detailing how the tax reduced oil companies’ incentive to drill for more oil. The Congressional Research Service found domestic production decreased because of the tax. If we really want gas prices to go down we need more oil to hit the market. If we want to reduce U.S. dependency on foreign oil the perverse incentives of a windfall tax is what we don’t need.
The Carter windfall tax was also an utter “bureaucratic nightmare.”
Instead of talking about common sense ways of increasing the oil supply Obama ignores that side of the economic equation. He puts his hope in alternative energy like turning food into ethanol. In 2005 he voted for an energy bill that pushed for greater ethanol production. So Obama is willing to accept high gas prices and high food prices. A previous Democratic President remembers a “change” like that: Jimmy Carter.
Besides not actually doing anything about high gas prices Obama would use the windfall taxes to pay for pay for tax cuts to help people pay their energy bills [via The ChamberPost]. Carter’s windfall tax didn’t raise as much as projected. The same would happen with Obama’s forcing him to scrounge around looking for ways to fill that budget hole.
An Investors Business Daily editorial tries to set straight Democrats like Obama and Clinton [via BlueStateFollies.com]:
Our free-market economy is built on profit. Higher profits mean more jobs, higher incomes, more investment in equipment and people, higher standards of living. Yes, profits are the engine for all of this — and that includes the profits of “Big Oil.”
By signaling that supply is scarce, higher profits encourage more production. Except, that is, when Congress through its inept lawmaking stands in the way. And that’s the case now with the oil industry.
Congress seems almost constantly at war with the oil companies — slapping them with taxes and pillorying their CEOs while ignoring the fact that higher profits lead to more exploration, drilling and development.
If anyone is to blame for our current energy mess, it’s Congress. At least 20 billion barrels of oil sit untapped in Alaska and another 30 billion lie offshore. Such sources that could help satisfy U.S. demand for years to come. Yet, Congress has put them out of bounds.
Obama was wise enough to not join the gas tax holiday fad. Too bad his windfall-profit tax is an even worse idea.
“Obama’s Energy Flip-Floppery”
[picture via xampl9]
[...] In an editorial over the weekend The Wall Street Journal points out some problems I also mentioned with Sen. Barack Obama’s proposed windfall tax on oil companies and agree with him on the gas tax holiday. They also get to the crux of the issue of high gas prices: Mr. Obama is right to oppose the gas-tax gimmick, but his idea is even worse. Neither proposal [Clinton’s or McCain’s] 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. [...]