Posted by
theoilpatchplug on Friday, May 09, 2008 9:25:32 AM
Energy: In their ongoing war against U.S. oil producers, Senate Democrats say they'll slap Big Oil with a windfall profits tax and take away $17 billion in tax breaks, among other punishments. This is an energy plan?
The planned 25% tax on windfall profits would be imposed on oil company earnings above what the Senate's wise members decided was "reasonable." Never mind that what's "reasonable" to one person might be punitive to another.
Senators also want to impose steep penalties on "price gouging" — despite the fact that some 17 separate studies have found it doesn't exist. The plan amounts to little more than an attempt to impose price controls — a socialist tool dressed up in populist garb.
Democrats hailed their new measure as an attack on "the root causes of high gas prices." That's one of the more laughable comments to emerge from the Senate in some time.
As any student who's taken Econ 101 at the local junior college can tell you, higher taxes don't encourage production; they discourage it. But Senate Democrats apparently played hooky the day taxes were discussed. They should at least have read the report from their own nonpartisan Congressional Research Service in 2006.
It shows that from 1980 to 1986, the last time the U.S. had a windfall profits tax on oil companies, the results were disappointing. As the chart shows, oil companies were hit hard by the tax. And in line with basic economic theory, they produced less oil, not more.
"Over the entire 1980-1986 period," the study said, "the (windfall profits tax) reduced domestic oil production from between 320 million barrels . . . and 1,268 million barrels."
The study also concluded: "The effect of reducing domestic oil production was to increase the level of imported oil."
At the time, the U.S. imported about 30% of its oil; today, we import about 60%. In part, that jump in oil dependency was due to the huge tax advantage we gave foreign oil companies in the 1980s — and to the continuing advantage we give them today by refusing to let our oil companies produce more crude from our own reserves.
The Democratic Party's bad energy policies in the 1970s hit poor Americans hardest, while delivering our energy future into the hands of OPEC's unelected poobahs. Now they want to do it again.
By the way, if they try to sell you on the idea that this will be a deficit-cutting move, don't believe it. Revenues from the windfall tax were far less than expected, because producers pumped less and nontaxed imports flooded our market. Compared with a forecast of $393 billion in windfall tax revenues from 1980 to 1988, Congress got a mere $80 billion.
In short, the windfall profits tax is a loser — on every level.
Likewise, the Senate's proposals for new penalties on "price gouging" are also fated to fail. This we know because when Jimmy Carter tried price controls, they resulted in massive shortages, blocklong lines at gas stations and, ultimately, gasoline rationing.
Perhaps the worst lie uttered in defense of price controls and higher taxes is that the less well-off will benefit. Don't believe it.
Even as Democrats mouth pieties about "bringing down the price of gasoline" for the poor, they will in fact be hitting working Americans with a big tax hike. "A windfall profits tax on big oil companies may sound good in theory," the nonpartisan Tax Foundation said last week, "but it will be paid by individuals." Big Oil doesn't pay the tax; you do.
House Speaker Nancy Pelosi criticized President Bush for offering "two ways of dealing with the energy crisis — drill and veto." But that's a far better plan than anything the Democrats have offered.
Tapping the hundreds of billions of barrels of oil that we have on land and offshore makes sense. It would add supply and lower the price. Every Democratic plan now on the board — every one — would do the opposite.
Knowing what we do, it's unfathomable that Congress would ponder a return to '70s-era energy policies that nearly destroyed our economy. But that's exactly what it's doing.
IBD