I’m back at last … after some serious technical problems and an out-of-town jaunt for business purposes. When I woke up this morning to read that Republican Senator Arlen Specter has joined Democrat colleagues in a call for a “windfall profits” tax on oil companies, I realized it’s time to pour a barrel of cold water on the conversation. Gas prices indeed have soared. But is the problem price-gouging? Or perhaps could it be a matter of supply and demand?
I’m not a professional economist, so I am not able to offer an in-depth analysis here. However, I can tell you to read this piece from the Tax Foundation by Scott Hodge and Jonathan Williams. The piece was written last November when talk of a “windfall profits” tax started circulating around the Capitol. Here is the key passage:
Before rushing to create a new federal tax, lawmakers should ask two questions:
(1) Do oil companies currently pay too little in taxes compared to profits?
(2) What was the effect of the last windfall profits tax enacted in 1980?
The answer to the first question is that over the past 25 years, oil companies directly paid or remitted more than $2.2 trillion in taxes, after adjusting for inflation, to federal and state governments—including excise taxes, royalty payments and state and federal corporate income taxes. That amounts to more than three times what they earned in profits during the same period, according to the latest numbers from the Bureau of Economic Analysis and U.S. Department of Energy.
These figures do not include local property taxes, state sales and severance taxes and on-shore royalty payments.
The answer to the second question, according to the Congressional Research Service (CRS), is that the 1980s windfall profits tax depressed the domestic production and extraction industry and furthered our dependence on foreign sources of oil.
Look at the facts for yourself before falling over the cliff of hysteria. Let’s make sure our minds are fortified with logic to avoid the pratfalls of the Populist siren’s song. Fight the economic illiteracy and demagoguery. Let’s pursue a commonsense solution: the best thing we can do is remove some government controls. Less taxes and regulations would be nice.
Only two things are going to bring down the price of oil and consequently the price of gasoline at the pump: decrease demand and increase supply. If you can find a way to cut back your usage of fuel, now is the time to do so. Second, and quite simply, we could open up the Alaskan National Wildlife Refuge (ANWR) to very low-impact drilling. Low risks … high rewards. Preserve a pristine view for some caribou or take pressure off the budgets of hard-working American families? Ask your Senator whether (s)he has voted to open up ANWR or whether (s)he sides with the caribou.