This shouldn’t shock anyone who pays attention to the price of gasoline, but it raises plenty of questions about the next administration’s ambitious agenda.  Barack Obama won’t impose a windfall-profits tax on oil companies, breaking an oft-repeated campaign pledge.  He had originally planned to use the revenues he expected to fund his spending plans:

U.S. President-elect Barack Obama is not planning to implement a windfall profit tax on oil companies because prices have dropped below $80 a barrel, an aide said on Tuesday.

“President-elect Obama announced the policy during the campaign because oil prices were above $80 per barrel,” an aide on Obama’s transition team said. “They are currently below that now and expected to stay below that.”

Oil prices have fallen from a record $147 a barrel in July to under $50 this week.

Obama, who signaled early in his campaign for the White House that he would take an active approach to oil markets as president, had planned to use the revenue from a windfall profits tax to fund a tax rebate for low- and middle-income families struggling with high energy prices.

The reality of the oil market made the notion of a windfall-profits tax untenable, simply because the revenues no longer existed.  The profit margins actually never existed, but the Obama campaign misled voters by focusing on the dollar amounts rather than the margin percentage, which was actually quite modest, between 8-10% during a time when other industries averaged two or three times that return.

Obama now claims that his tax relief, based on refundables rather than actual cuts in marginal rates, no longer relies on the supposed income that windfall-profits taxes would have generated.  If so, it’s difficult to see where the money will originate in a sharp recession.  They want to raise the marginal rates on top earners, with some suggesting an increase from 36% to as high as 44%, which will have the effect of halting capital investment and extending the recession.  Under static analysis, that money might exist, but any dynamic analysis will show that the revenue from those rate hikes not only won’t fund the expansive vision of new government spending Obama promised, it won’t pay for the massive refundables either.

The best way to lower profits for the oil companies would be to allow for greater investment in domestic production.  Oil companies would love to invest in drilling off the OCS, in shale formations, and in ANWR, as well as new refinery sites.  That would not only produce stability and security in American energy production, it would employ millions of Americans and stop the vast transfer of American wealth to foreign oil producers.  It would also have the beneficial effect of robbing states like Iran, Venezuela, and Russia of the vital support high oil prices give their regimes.  That will produce the boost in the economy needed to invest in research and development for alternative energy sources, without the government going even deeper into debt than it already is.

Perhaps Obama might have awakened to that reality.  Let’s hope so.  If it took a Nixon to go to China, maybe it would take an Obama to open up the OCS and ANWR.