Pain at the Pump
May 9th, 2008 by Peter SudermanIBD agrees: taxing oil profits makes gasoline more expensive, not less:
Senators also want to impose steep penalties on “price gouging” — despite the fact that some 17 separate studies have found it doesn’t exist. The plan amounts to little more than an attempt to impose price controls — a socialist tool dressed up in populist garb.
Democrats hailed their new measure as an attack on “the root causes of high gas prices.” That’s one of the more laughable comments to emerge from the Senate in some time.
As any student who’s taken Econ 101 at the local junior college can tell you, higher taxes don’t encourage production; they discourage it. But Senate Democrats apparently played hooky the day taxes were discussed. They should at least have read the report from their own nonpartisan Congressional Research Service in 2006.
It shows that from 1980 to 1986, the last time the U.S. had a windfall profits tax on oil companies, the results were disappointing. As the chart shows, oil companies were hit hard by the tax. And in line with basic economic theory, they produced less oil, not more.
What’s the real solution? Increase production, decrease regulatory barriers. As Megan McArdle explains, greater world demand for oil combined with a static supply means that prices are going to rise. And since we’re not going to lower demand any time soon, the challenge is to expand energy production, not grouse and harumph about oil company profits while passing laws that it more difficult and more expensive to fill up our cars.
May 9th, 2008 at 2:54 pm
I cover oil stocks — actually demand in the US already is falling, maybe 1%, and probably will fall faster as people conserve more. But unlike in the ’70s, when US demand drove global demand, today it’s emerging markets demand driving global demand. And pump prices in most important emerging markets are lower than in the US. So yeah, I agree, prices might keep rising until enough demand in enough places is destroyed.
A little datapoint on oil co profits: in the 1q, the oil price was up about 66% vs the 1q07…but net earnings for most International Oil Companies (Exxon, Shell etc) were up only 17-31%.
May 9th, 2008 at 6:44 pm
Ah, from 1980 to 1986, when oil prices went down & U.S. oil production went up (imports also went down, but I suspect that those days are over), and all this happened during the Iran hostage crisis, the Iran-Iraq War (which we aided Iraq in), and a boycot of Libyan oil!
“The facts…they burn!!”