A lot of politicians are calling for an excess profits tax on oil in the wake of the current high prices, and a number of people I had previously considered intelligent are echoing the call, so let’s examine the issue.
Would an excess profits tax lower gas prices?
No. Many people confuse profits with profit margins; while the oil companies are making record profits, their profit margin per gallon is the same as it was before- they’re simply selling more gallons. If we have another recession, their “windfall” profits would disappear as quickly as they appeared. This margin is between 7 and 9 cents per gallon- if they made no profit at all it would have no significant effect on prices at the pump… the real windfall profits are being reaped by the government; combining Federal and State excise taxes with State and County sales taxes, government is making an average of 69 cents per gallon- declare a tax holiday, and gasoline prices would be, after correcting for inflation, the lowest it’s been since the Roaring Twenties!
Tangent- if the government is making more money on gasoline than Big Oil, what are we getting for our money? The Department of Energy was created specifically to deal with price shocks and to create alternative energy to reduce our dependence on foreign oil… and a third of a Trillion dollars and 30 years later, through Republican and Democratic administrations alike, it’s an abysmal failure. Where’s the public outrage against that?
Who would pay this excess profits tax?
The stockholders. Everyone who has a pension, to start with- even if your Mutual doesn’t have any oil stock, (unlikely), it’s invested in other companies that do… companies like your bank, who needs those earnings to pay the interest on your savings account. Your life insurance company. The place where you got your mortgage. In short, every American. And what a great way to encourage the oil companies to invest in research and exploration- cap their earnings and weaken their stock…
Then who would benefit from an excess profits tax?
There is one and only one class of people who would benefit from it- unscrupulous political hacks who care more for their personal power than they care for their country.