NCPA - National Center for Policy Analysis


August 26, 2008

There are certain laws you can break without serious repercussions, but the laws of economics are far less forgiving.  And history shows that we will all pay a hefty fine if lawmakers choose to enact a "windfall" profits tax as House Speaker Nancy Pelosi has just proposed and Democrat presidential candidate Barack Obama supports, says Margo Thorning, chief economist at the American Council for Capital Formation.

Reinstituting the windfall profits tax on oil companies will only reduce the amount of money companies can plow back into finding more oil and reduce the return to shareholders.  A more serious and useful approach for bringing down high energy prices would consist of several steps:

  • Free up more locations -- offshore and onshore -- for domestic exploration and development to help increase supply.
  • Revise the federal tax code to increase the speed of capital cost recovery for new investment.
  • Reduce the corporate tax rate to give companies more funds for capital expenditures.
  • Fund the provisions in the 2005 Energy Policy Act aimed at increasing energy supplies, encouraging conservation and promoting renewable energy sources.
  • Work with developing and emerging economies to promote economic freedom, the rule of law and the sanctity of contracts.

In the long run, explains Thorning, these steps would gradually enhance energy supplies, reduce demand for energy, and relieve the global pressure on energy prices.

That's a real plan for reducing American's high energy cost frustrations, says Thorning.

Source: Margo Thorning, "It's Unwise To Tax 'Well-Earned' Profits," Investor's Business Daily, August 26, 2008.


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