Friday, May 2, 2008

The Pitfalls of Windfall Taxes on Oil Profits

Investor's Business Daily has an editorial on the renewed campaign to punish oil companies like Exxon Mobil for their recently announced record profits. Here is are two key quotes.

Remember: Oil companies don't really pay "windfall profit" taxes, anyway. You do. Some 50 million Americans today own oil company stock, either directly or through 401(k)s and mutual funds. Don't be suckered: "Windfall profits" taxes come right out of your retirement account, not out of the oil industry's business.

[A]ccording to Ernst & Young, from 1992 to 2006 the U.S. oil industry spent $1.25 trillion on long-term investment vs. profits of $900 billion.

The other question our politicians don't ask is: What do the oil companies do with these profits? Hide them under a mattress? I don't think so! It is put somewhere, in supporting drilling (where it's allowed), in investments in other technologies, or in research. Even if Exxon puts the profits in money market funds it is still being used for some financial purpose that has ripple effects in the economy. On the other hand what happens to windfall profits taxes? Into whose hands does this money go? Our government and our politicians. I don't know about you but I'd rather have that money being put to some productive use somewhere in the market than feeding our legislators and their pet projects.

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