Kudos to Congressional Republicans for defending capitalism and rejecting central economic planning. On Tuesday, Senate Republicans denied their Democratic colleagues the 60 votes needed to end debate and pass a windfall oil profits bill. The bill would have put a 25 percent tax (windfall oil profits tax) on profits over what would be determined "reasonable" when compared to profits several years ago. It would have regulated energy futures traders in order to limit market speculation. It would have made price gouging of oil and gas a federal crime during a declared energy emergency by the president. Lastly, it would have given the Justice Department authority to bring charges of price fixing against countries that belong to the OPEC oil cartel. The measure was meant to address and punish those that are responsible for high prices at the pump – namely big oil companies, speculators and oil producing countries. Of course, these Washington contrived villains are not ultimately responsible for high gas prices. Even if they were, the measure would not have solved the problem. It would only have made it worse.
It is amazing what short memories proponents of a windfall profits tax have. In 1980, Jimmy Carter enacted one and from 1980 to 1988 (the last year of the tax) there was a 3 to 6 percent decrease in domestic oil production. This happened because the tax increased the marginal cost of production, thereby reducing the quantity of gasoline produced. A decrease in gas supplies without a corresponding decline in demand means even higher prices at the pump. In a best case scenario, if the tax had been enacted oil companies would pass the tax expense on to consumers in the form of higher prices and we might have to wait in long lines to fill up or be subject to rationing.
Windfall profit taxes are also bad because 41 percent of oil company stocks valued at over $267 billion are currently held in various forms of pension plans and retirement accounts. The tax would cause the values of these accounts to dwindle causing negative effects on national savings and our senior population. Rest assured, while the Democrats believe a windfall profits tax is the right thing to do, the measure’s vengeance would have been mostly felt by the American consumer.