Windfall Profits Tax: Caprice, Meet Arbitrary

By August 4, 2008Economy, Energy, Taxation

And say goodbye to Mr. Rule of Law…

The Wall Street Journal editorialists take a considered look at Sen. Obama’s latest energy plan, a $1,000 “stimulus check” paid for by a “windfall profits” tax on oil companies, noting several important points:

  • Record high profits by the oil companies are accompanied by record high taxes: “Between 2003 and 2007, Exxon paid $64.7 billion in U.S. taxes, exceeding its after-tax U.S. earnings by more than $19 billion. That sounds like a government windfall to us…”
  • Exxon’s profit margin was 10 percent in 2007: “If that’s what constitutes windfall profits, most of corporate America would qualify. Take aerospace or machinery — both 8.2% in 2007. Chemicals had an average margin of 12.7%. Computers: 13.7%. Electronics and appliances: 14.5%. Pharmaceuticals (18.4%) and beverages and tobacco (19.1%) round out the Census Bureau’s industry rankings.”

The point is that what constitutes an abnormal profit is entirely arbitrary. It is in the eye of the political beholder, who is usually looking to soak some unpopular business. In other words, a windfall is nothing more than a profit earned by a business that some politician dislikes. And a tax on that profit is merely a form of politically motivated expropriation.

It’s what politicians do in Venezuela, not in a free country.

Yeah, and next thing you know they’ll be declaring some companies “patriotic” and others not.

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