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November 11, 2005
Price Gouging And Windfall Profits: Where have I Heard That One Before?
Did Wednesday's hearing on Energy Pricing and Profits, and the emerging talk of windfall profit taxes, make anyone else just a little nostalgic for the 1970s? No? Well, at least there has been plenty of buzz out in the blogger fields. As befits a discussion centered on a fairly large issue, different folks have focused on different aspects of the debate, pro and con. pgl lends his support to a windfall profit tax, on the basis of its revenue generating potential:
I’m with Senator Boxer on the proposal to use a windfall-profits tax to reduce the government deficit so we don’t have to rely on taxing the working poor as much.
The New York Times has similar ideas -- wrapped around a more specific desire for a teax-based energy policy -- but Russell Roberts is not impressed with the logic. And Andrew Chamberlain at Tax Policy Blog offers a very discouraging word on the presumption that there are big revenues to be had from a windfall profit tax, buttressed by this pretty convincing picture:
The shortfall from projected revenues in that picture had a lot to do with missed projections on energy prices. Apropos to that, Market Power suggests that, relative to pre-Katrina levels, gas retailers have recently been "price degouging" (and he has the graph to prove it.)
As to whether windfall profit taxes or Congressional oversight will ease the pain of the consumer, Hispanic Pundit fears that government intervention and lower prices just don't add up. while Gerald Parente at Tax Policy Blog warns that the burden of any such tax may hit closer to home than many think:
... the answer to rising prices from many in Washington has been a proposed windfall profits tax. Not only would such a tax create uncertainty that’s likely to reduce future output, it also would unfairly strip away profits from shareholders in an ex post facto manner.
A large portion of the shares of companies like Shell and Exxon Mobile are owned by mutual funds. Who owns mutual funds? Anyone with a well-diversified retirement portfolio. As a result, imposing a windfall profits tax may end up harming many Americans on the verge of retirement, without doing much to lower gas prices.
... 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.
As to the whole fairness issue, Williams and Hodges provide a little documentary evidence:
... the taxes paid or remitted by domestic oil companies have been consistently far greater than their profits and now total more than $2.2 trillion (adjusted for inflation) over the past quarter century. The largest share of those taxes is federal and state gasoline excise taxes. In 2004, governments collected $58 billion in gasoline excise taxes. Overall, governments have collected $1.34 trillion in gasoline excise taxes since 1977.
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