Windfall Profits Tax

[Anton_Batey]

With all the talk of implementing a windfall profits tax on oil companies, what are the primary negative effects this will have on gas prices?

The only thing I can come up with is that it will lower new investment in oil so in the long run may curtail supply.

Anything else?

[Aristotle100]

You basically hit the nail on the head. It will also discourage competition. Why would a competitor enter this market knowing before hand the extreme amount of taxation that he/she will incur? This will also lead to gas shortages, so basically we will have the 1970’s all over again. Price caps, gas shortages, gas lines, and new investing or competition will be discouraged into entering the market. All of this will of course raise the price of gas in the long run. Also the government will have more money to throw around and that equates to wasting more money and flushing it down the toilet. Not the mention the immoral nature of invading the market and basically stealing money from regular businesmen and your average investor.

[Goldenboy219]

Another thing to consider is the sheer amount of retirement investments in the energy industry. These are currently popular picks in 401 k’s, and for good reason too. As previously mentioned, a windfall tax would not necessarily have an instantaneous effect, but would ultimately drive down the overall market capitalization of these stocks thereby hurting many middle class Americans who are heavily invested.

I wonder what Obama is going to do?[^o)]

[Deist]

Taxes also raise the cost of doing business so there is a chance that it might be passed on to the consumer. For instance gas prices did rise pretty quickly when the United States Congress eliminated the oil companies loopholes. I am not certain if the loophole reductions did this but I bet there is some connection. A windfall profit tax, which is pretty much a tax that targets the oil companies will do everything people have mentioned above and raise the overhead cost of the business.

[wombatron]

@Goldenboy219

I wonder what Obama is going to do?

That question keeps me up at night. [:^)]

[krazy_kaju]

@Goldenboy219

I wonder what Obama is going to do?

He’s not going to get re-elected, that’s what. Jimmy Carter II, anyone?

[BlackSheep]

@Deist

Taxes also raise the cost of doing business so there is a chance that it might be passed on to the consumer.

No, profit = price - cost. Sure, it may very well increase prices from the reduced investment.

Anyway, such unpredictable environment may actually reduce prices, at least in the short-mid term. From David Friedman’s Price Theory:

Most oil, at present, belongs to governments; most of those governments are at least somewhat unstable. The present rulers of Saudi Arabia, for example, would be foolish to base their plans on the assumption that they will still rule Saudi Arabia ten years from now–especially with the fate of the Shah of Iran still recent history. They should be, and doubtless are, aware that money in Switzerland is a more secure form of property than oil in Saudi Arabia.

The effects of insecure property rights are not limited to distant sheiks. The American government may be stable, but its economic policies are not; the imposition of special taxes (such as the windfall profits tax) on oil companies is, in effect, a partial expropriation. If oil companies expect such taxes to increase, it is in their interest to produce oil now instead of saving it for the future–or, to put the conclusion more precisely, it is in their interest to produce more now and less in the future than they would if they did not expect such taxes to increase.

One implication of this argument is that the price of oil at present may be too low! If most of it belongs to people with insecure property rights, they have an incentive to produce more now (driving the present price down) and less in the future (driving the future price up) than if property rights were secure. If, as I claim, the solution under secure property rights is in some sense optimal (“efficient” in the sense to be defined in Chapter 15), then insecure property rights create a less desirable outcome. Initially oil prices are too low and consumption too high; later prices are too high and consumption too low. The allocation of the resource over time is inefficient; too much is consumed now and too little saved for later.

[liberty_student]

@wombatron

@Goldenboy219

I wonder what Obama is going to do?

That question keeps me up at night.

i lol’d

[wombatron]

@liberty student

@wombatron

@Goldenboy219

I wonder what Obama is going to do?

That question keeps me up at night.

i lol’d

And it still keeps me up a night. The man is far too charismatic.

[eliotn]

@wombatron

And it still keeps me up a night. The man is far too charismatic.

He should actually do something productive with that charisma, like giving people real hope. Or, he could start a non-profit.

[laminustacitus]

@eliotn

He should actually do something productive with that charisma, like giving people real hope.

By immediatly resigning.

[eliotn]

@laminustacitus

@eliotn

He should actually do something productive with that charisma, like giving people real hope.

By immediatly resigning.

After all, there are better things he can do to help the poor.

[auctionguy10]

@krazy kaju

@Goldenboy219

I wonder what Obama is going to do?

He’s not going to get re-elected, that’s what. Jimmy Carter II, anyone?

I can’t even be sure about things like that- he can just use the excuse of “Well it would’ve been much worse if we didn’t go through with all my plans”.

[Jon_Irenicus]

And it still keeps me up a night. The man is far too charismatic.

No, it’s just that the audiences he is addressing have abysmally low standards.