A Tale of Two Campaigns
They Say All Is Well, But How Could You Stay Calm When This...
Veterans Group Launches Campaign to Make Our Heroes’ Voices Heard in 2024 Election
Latest Attacks on DeSantis From the Trump Team Underscores a Potentially Serious Long-Term...
AOC Parody Account Is Dead, But Now Kamala Harris Has One
Fallout Continues Within CNN After Devastating Profile of Embattled CEO
This 2024 GOP Candidate Would Not Implement a Transgender Ban in the Military
Just A Quick Question For You (And Other Fundraising Scams)
Want to Save the Planet? Stick to Eating Meat
Incoming Twitter CEO Brings Former NBCUniversal Colleague With Her
There Are Now Questions About Trump Participating in First GOP Primary Debate After...
California Officials Say Florida Orchestrated an Illegal Immigrant Flight to Sacramento
New Data on Younger Voters Is Fascinating
Floyd Brown’s New Book Takes a ‘Counterpunch’ at the Left’s Dismantling of Society
Montenegro Won’t Free Itself From Crime Through Crypto

Idiot Economics

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.

It has become popular for politicians to advocate going after oil companies for their seemingly outsized profits. Otherwise rational people turn red-faced with anger when they think about the tens of billions of dollars flowing into the coffers of “big oil.”

The most often talked about “solution” to—really punishment of—big oil’s big profits is the imposition of a “windfall profits” tax. Such a tax would set an arbitrary limit to what oil companies can make and then slap an extra tax on profits if they exceed that limit.

Now set aside the question of whether it makes sense for politicians to determine what profits companies should earn; a belief that politicians should be the arbiters of economic rewards seems to be a continually recurring idiocy that we will have to fight indefinitely.

Also set aside the fact that oil company profits are actually much more modest than the profits in other industries, including agriculture which has seen its profits recently skyrocket faster than oil companies have. Nobody is calling for confiscating farmers’ profits, which are bolstered substantially by agriculture subsidies and mandates that would make oil company executives blush if they we offered similar treatment.

Instead, let’s just examine the immediate and discernable results from the imposition of such a tax. What, exactly, would happen in the oil markets if Washington decided to impose a windfall profits tax on oil companies?

Where is the big money in the oil business? The profit margin on refining oil into gasoline and other oil products has actually narrowed by almost 50%--because the high price of oil and a decline in gasoline consumption has made refining less profitable. Ditto for gas stations, which have seen their profit margins decline as the price of gas went up.

The fact is that the spike in oil companies’ profits comes from selling the oil that they own and pump out of the ground. And increasing taxes on pumping oil will do one thing and one thing only: make it less attractive to pump that oil. A windfall profits tax would reduce the oil production of American companies(as it did last time we imposed a windfall profits tax on oil)--and guess who would pick up the slack?

Only a small fraction of the oil on the market is actually owned by “big oil.” Most of the rest—about 90%--is actually in the hands of governments such as Saudi Arabia, Iran, Russia, and Venezuela. And if you haven’t thought of it, none of those governments or non-American oil producers would have to pay that “windfall profits” tax.

So a windfall profits tax would guarantee one thing: Americans would be put in the unenviable position of sending even more of their hard-earned dollars overseas to mostly unfriendly governments to buy oil that could have been produced by American companies.

Driving American production down would also mean that the price of oil would go up. A windfall profits tax, in other words, would make for a nice windfall profit for all those unfriendly governments that currently own most of the market for oil anyway.

As you can see, even if you think that a “windfall profits” tax would somehow be fair or is economically justifiable, imposing it would still be profoundly stupid. All we would be doing is handing over more money and more power to foreigners who don’t like us very much.

Join the conversation as a VIP Member


Trending on Townhall Video