December 5, 2008
On Tuesday, an aide to the president-elect's transition team said Obama was dropping his plan for a new windfall profits tax because oil prices had dropped below $80 a barrel and were expected to stay there. Oil prices have fallen from a record $147 a barrel in July to less than $50 a barrel this week.
During the campaign, Obama announced an Emergency Economic Plan that would give families a stimulus check of $1,000 each and individuals $500 each, funded in part by what his presidential campaign called "windfall profits from Big Oil."
However, says Investor's Business Daily (IBD):
- Obama forgot to mention that, in 2007, Exxon paid income taxes of $30 billion on revenue of $390 billion and net income of $40.6 billion.
- Including income, sales-based and all other taxes, Exxon paid $105.7 billion in 2007 taxes, or about 44 percent of its revenue.
- In 2007, a record year, oil companies earned 8.3 cents per dollar of sales; beverage companies and cigarette makers, by contrast, earned 19.1 cents, drug makers, 18.4 cents, and all manufacturers made 8.9 cents on average, more than "Big Oil."
And what did they do with their "record profits"? Aside from paying record taxes, they spent an awful lot to find new sources of domestic energy, says IBD. According to Ernst & Young, from 1992 to 2006 the U.S. oil industry spent $1.25 trillion on long-term investment vs. profits totaling $900 billion.
"A windfall profits tax is bad policy at any price," noted Thomas Pyle, president of the Institute for Energy Research. Indeed it is, as shown by what happened after President Jimmy Carter signed the Crude Oil Windfall Profits Tax Act into effect on April 2, 1980, says IBD:
- The 1980s version, according to Congressional Research Service data, cut domestic oil output by 3 percent to 6 percent and increased oil imports by 8 percent to 16 percent.
- A side effect was falling, not rising, tax revenues.
This is not the path to energy independence. When you tax something, you get less of it, not more, says IBD.
Source: Editorial, "Oil Change," Investor's Business Daily, December 5, 2008.
Browse more articles on Tax and Spending Issues