The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
November 14, 2005
Windfall Profits Taxes: Take 3
In my last post, I cast a skeptical eye toward the prospect of a windfall profit tax levied on oil companies, arguing that rational businesspeople cannot be expected to expect that a one-time charge on profits deemed to be "too high" will really turn out to be "one time." If the government does it once, everyone will expect that they will do it again when the spirit so moves. The consequences for investment will likely be negative.
But as Dorgan explained at a press conference announcing the bill, "this is not your father's windfall profits tax." Instead, the Dood Dorgan plan offers companies an out: Profits invested in oil exploration, refineries, or capacity expansion would be exempt from the tax. "It will be the most significant incentive for them to use those profits to invest in the ground of any incentive I can possibly think of."
Fair enough. Although this runs counter to the goal of using the tax to raise revenues -- which Dodd and Dorgan apparently want to spend on transfers to consumers "who have paid with pain at the pump" in any event -- it does address the bad incentive effects that I previously discussed. But then my question would be this: If incentives for investment in "oil exploration, refineries, or capacity expansion" are a good thing, why should they be tied to "windfall profits"? Isn't it likely that such incentives are likely to be least necessary when oil companies are flush and prices are high?
I confess that my gut reaction to these types of proposals is generally negative. My personal vision of tax-system heaven is something like this: Forget the economic engineering, give me a tax system with as flat a playing field as possible, leave it be, and watch the private-market garden grow. The windfall profit tax -- even the thoughtful one that Messrs. Dodd and Dorgan have dreamed up -- just doesn't fit into that scheme.
UPDATE: As reader nate pointed out in a comment to my first post on this subject, Andrew Samwick has a different opinion.
TrackBack URL for this entry:
Listed below are links to blogs that reference Windfall Profits Taxes: Take 3 :
Tracked on Nov 21, 2005 6:12:38 PM
- GDPNow's Forecast: Why Did It Spike Recently?
- How Low Is the Unemployment Rate, Really?
- What Businesses Said about Tax Reform
- Financial Regulation: Fit for New Technologies?
- Is Macroprudential Supervision Ready for the Future?
- Labor Supply Constraints and Health Problems in Rural America
- Building a Better Model: Introducing Changes to GDPNow
- How Ill a Wind? Hurricanes' Impacts on Employment and Earnings
- When Health Insurance and Its Financial Cushion Disappear
- What Is the "Right" Policy Rate?
- February 2018
- January 2018
- November 2017
- October 2017
- September 2017
- August 2017
- July 2017
- May 2017
- April 2017
- March 2017
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit
- Wage Growth