Can Obama's Windfall Profits Tax idea help boost the economy?

Question

As I understand it, the wind-fall profits tax on oil is really just an excise tax. It seems to me that this would cause multi-national oil companies to merely cut back on US domestic production and/or buy more foreign oil to avoid the taxes.

Result: Less supply = even higher prices.

http://en.wikipedia.org/wiki/Windfall_profits_tax

http://blogs.wsj.com/economics/2008/08/01/is-windfall-profits-tax-a-green-proposal-in-disguise/

It was tried in 1980 and was ineffective.

Answer 1

Taxes have NEVER boosted the economy.

Answer 2

The windfall profits tax, by itself, is not intended to boost the economy.  What is intended to boost the economy is taking the revenues from that tax and using it to give Americans a substantial rebate, ostensibly to help them pay for gasoline for a few months.

I work for a major oil company.  In fact, I work for the one that just posted nearly twelve billion dollars in profit -- not income, PROFIT -- for the last quarter.  If this tax goes through, all it will mean is that my company will make "only" ten billion in profit, or nine billion, in a quarter.  That's still a lot of money. The oil companies will bellyache about it, but in the end they're not going to cut back on oil production when they're making that kind of money.  That's one of the differences between now and the 1980s -- the oil companies weren't making those kinds of profits back then.

Besides, the recent large and rapid run-up in oil prices, and by extension gas prices, has not been a function of supply and demand, but of speculation and the declining value of the dolllar.  Speculation can drive the price of anything through the roof, as we saw in the housing price bubble that grew over a number of years and suddenly burst recently.  The same thing happened with the price of Dutch tulip bulbs in the 17th Century -- tulip bulbs, for Pete's sake (no, I'm not making this up).  Speculation caused the prices to rise to ridiculous levels, and then the bubble burst and things returned to normal, although some people lost a LOT of money.

The second part of the problem, the declining value of the dollar, has been caused primarily by the huge debt racked up by the Bush adminstration as they try to pay for two wars, as well as the over-arching "War on Terror," while cutting taxes.  They have financed this by borrowing heavily, to the tune of billions of dollars, from other countries, especially China.  Since oil is valued in dollars on the global market, a decline in the value of the dollar will cause an increase in prices, even if supply and demand remain the same.  Demand has certainly increased over the last several years, as it has for many, many years, but it hasn't increased enough to account for the current price of oil.  

Answer 3

It depends on what they do with the money.

No matter what happens, it will hurt in the short term.  However, if it is reinvested into helping companies like GM and Chrysler pump out effective and cheap electric cars, we could possibly re-emerge as the best auto-makers in the world, showing the Japanese and Germans that American cars can indeed compete.

However, they will probably s***w up something, and having a mostly neutral cost-benefit ratio or a slightly bad outcome.  

Answer 4

No. It might do a good job of killing what's left of it though.  

Answer 5

Cash is cash