Barack Obama has released his “Emergency Economic Plan,” a clever mechanism that owes much more to Robin Hood than Milton Friedman. Obama plans to impose windfall-profits taxes on oil companies, and then redistribute the funds to taxpayers in the form of one-time rebates of $1000 per family. Obama also plans on spending an additional $50 billion, half of which will go to state governments:
Sen. Barack Obama (D-Ill.) on Friday announced an “Emergency Economic Plan” that would give families a stimulus check of $1,000 each, funded in part by what his presidential campaign calls “windfall profits from Big Oil.”
Details are in this six-page policy paper.
The first part of Obama’s plan is an emergency energy rebate ($500 to individual workers, $1,000 to families) as soon as this fall.
“This rebate will be enough to offset the increased cost of gas for a working family over the next four months,” Obama said. “Or, if you live in a state where it gets very cold in the winter, it will be enough to cover the entire increase in your heating bills. Or you could use the rebate for any of your other bills or even to pay down debt[.”]
The Obama campaign simply can’t keep its credentials as a Carter retread hidden. The windfall-profits tax got tried by Jimmy Carter in the last desperate months of his presidency as he tried to demonize oil companies for fuel price increases and shortages. The tax hit decreased domestic production and forced us to import more oil, and it did nothing to relieve weary consumers. Only when Reagan took office and eventually got the tax rescinded, along with other arbitratry tax disincentives towards domestic production, did fuel prices and supply stabilize.
The Congressional Research Service analyzed the Carter-era WPT and called it a complete failure:
[T]he windfall profits tax was forecasted to raise more than $320 billion between 1980 and 1989. However, according to the CRS, the government collected only $80 billion in gross tax revenue ($146 billion in 2004 dollars). The net amount was actually less than this—roughly $40 billion—because the tax was deductible against corporate income.
CRS also found the windfall profits tax had the effect of decreasing domestic production by 3 percent to 6 percent, thereby increasing American dependence on foreign oil sources by 8 percent to 16 percent. A side effect was declining, not increasing, tax collections. Figure 1 clearly shows that while the tax raised considerable revenue in the initial years following its enactment, those revenues declined to almost nothing as the domestic industry collapsed.
The 1980 windfall profits tax was also found to be highly burdensome for the industry to comply with and for the Internal Revenue Service to administer, especially in years when no revenue was raised. It seems unlikely that a new tax could be designed in a less burdensome fashion. Tax Foundation economists estimate that U.S. companies currently spend nearly $150 billion annually to comply with the federal income tax alone. Enacting a new windfall profits tax would add an additional layer of complexity to the federal tax system.
And the most obvious point of all is that the rebates will only give us a one-time relief for the high gas prices, while the new tax will raise the cost of production and delivery for years. Does Obama believe that consumers don’t pay the price for taxation at the pump? And even if that didn’t happen, the 10% margin for the oil industry supports the shareholder price for these companies — in which millions of Americans have money invested through retirement accounts and other investments. Draining the worth of the stock will cost retirement accounts much more than a thousand dollars over the length of the investment, meaning that Obama is stealing from the rich and the middle- and working-class alike just to play Robin Hood now.
Note the use of the word “Emergency” carefully. Democrats in Congress don’t consider fuel prices an emergency; they just skedaddled for the summer without bothering to debate drilling. However, it makes for a nice title for those who want to take drastic action, such as nationalizing industries or slapping on huge new regulatory and tax burdens on the private sector. The desired result: making us a dependent class on the government and undermining investors.
We don’t need Robin Hood redistributionism. We certainly don’t need a return to Jimmy Carter’s disastrous energy policies. We need common sense policies that remove government as a roadblock to responsible energy production. Obviously, Democrats can’t deliver that.