Critiques of Obama’s Oil Windfall Profits Tax Proposals

Lynne Kiesling

OK, critiquing windfall profits taxes is pretty elementary skeet shooting target practice for economists, but Tim Worstall does it so eloquently in the Register!

More people want to use $30, $50, $90 oil than there is oil to go around at that price so markets do their magic thing, prices adjust and supply meets demand.

So, to lower those prices we’d rather like there to be either an increase in supply or a reduction in demand, yes? An increase in supply is going to come from someone, anyone, actually going out and finding more of the blessed stuff, or, if you want to be all technical about it, how to pump up more from the reservoirs than we already do (we never actually do get everything out of an oil or gas patch, although we’ve been getting better. We used to get maybe 10 per cent, now the best run fields get maybe 40 per cent). But both of these things cost money to do. So, umm, taking more tax out of the profits of those who look for more is going to help in what way? These cries for higher taxes seem to be missing the most basic point about how markets allocate capital.

Please do read the whole thing. Greg Mankiw also has a somewhat more geeky and technical commentary, focusing on the different incentives presented by a profits tax and a production tax.

One thought on “Critiques of Obama’s Oil Windfall Profits Tax Proposals

  1. Punish success, after profiting from it (35% FIT), to fund failure. Sounds like a winning plan to me! Maybe we can conserve our way to economic growth and prosperity too.

    Combine that with the “instant gratification of no gratification” approach to additional E&P activity and you have a near-perfect storm of energy shortages and high energy prices driving economic decline and massive societal upheaval.

    I can hardly wait.

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