A windfall vote tax?

Like I was sayin… if you can’t earn ‘em, buy ‘em.

The windfall profit tax has been making the rounds again recently.  If you are not aware, a windfall profit tax is a tax on profits that are “just too big”.

The dems have been pushing a windfall profit tax on “big oil” again recently.  I have had a lot of conversations around the watercooler lately and am amazed on how unfamiliar many people are with the facts.  For instance, the biggest evil out there, Exxon, has been earning record profits lately.  Huge numbers like 11 billion make headlines.  However, most people don’t know that the profit margin, what is left over after Exxon pays all it’s expenses, is only 10%.  That means for every dollar they earn in revenue, Exxon keeps roughly 10 cents.  The other 90 cents go to pay expenses.  That is above the average for other oil companies, but below the average for Computer, electronic, and pharma.  It is also worthy to note that of that 10 cents, Exxon gives 2 cents to the shareholders via dividends.

The scary thing is how do the dems define a windfall profit.  Earlier this year, dems supported a tax on oil companies that had profits that grew by more than 10% for any one year.  That is far below profit growth for many successful companies.  If I switch jobs and get a 10% increase in income, am I in danger for some some future “too successful tax”?

The American people have been somewhat luke-warm to the idea.  However, that may change.  According to some reports, Sen. Obama will make a windfall profit tax part of his energy plan.  To help make this more popular, he proposes giving $1,000 dollars to families ($500 for individuals) and having “big oil” pay for it with their “outrageous profits” through a new tax.  Wouldn’t it be better for the government to give us some of the billions of dollars they get from the oil companies via the taxes they already collect?

It will be interesting to see how many people support the “vote for me and I will give you $1,000″ candidate.  Yet another example of the “politics of change”.  He says that he doesn’t look like past presidents, but he sure sounds like past politicians.

Dems Fail to Place Cap on Profits

Like I was sayin… you can’t put a ceiling on success.  Today, the Dem run congress failed to get enough votes to push forward a tax on oil company profits that go above a certain level.

According to Dick Durbin the No. 2 Dem in the Senate, “The oil companies need to know that there is a limit on how much profit they can take in this economy”.  My question is, who sets that limit?  The government?  Aside from the obvious issues, there are several things that need to be considered with this effort.

First, the cost of taxes are passed on to the consumer.  The tax would not take away from the oil companies, but take away from the gas buying public.  Do we really need to pay more for gas?

Secondly, the taxes wouldn’t lower oil company profits (which the government doesn’t have the right to do), but rather would most likely lower production which would also increase prices.  A basic tenet of economics is that when demand goes up and supply goes down, price goes up.

The other scary thing about this thinking is who is the next target?  Do I make too much profit?  Can my excess money somehow help the economy if they take it away from me?  The congress does have the right to levee taxes, but does not have the right to determine how much profit a company can make.

The Dems do have one thing right in this fight.  Durbin indicated that if something isn’t done to bring down prices, “we’re going to find ourselves in a deep recession.”  Perhaps he should consider increasing supply by allowing domestic drilling and expanding processing capacity.  Going back to economics 101, if supply goes up, the price goes down. 

With all the push to bring down prices, you would think that they would stop blocking efforts to increase supply.  We haven’t substantially expanded a refinery or built a new one in decades due to government interference.  It has gotten to the point that foreign countries have started drilling off of our coasts since we won’t.

America does need to have a long term strategy to move away from oil and other fossil fuels.  But taxing oil companies doesn’t move us in this direction.