If you believe a windfall profits tax for "big oil" is a good idea, tell me how it will reduce $ at the pump?

Question

I thought corporations paid tax on profits, not income like us drones.

Answer 1

Competitive  firms can not pass profits tax on to  consumers, only firms with monopoly power can do that. A profit tax  is not the same as a sales tax that can be passed onto consumers. So replacing the sales tax with an excesses profit tax will lower the price at the pump, unless  we have been deceived and  oil companies really  do have  monopoly power after all, and are restricting supply to maximize profits.

Answer 2

... thereby increasing their profits, thereby increasing their taxes even more.

I don't think oil companies should be taxed at an exhorbitant rate.  I do think they should pay at least the same tax rate that I pay.  When they earn billions of dollars, they can afford it, and their stockholders can too.  They'll still be making a magnificent profit.

Answer 3

The oil companies can't pass the tax on to the consumer because they are competing with companies that aren't based in the US and would therefore not fall under the tax.  Oil is priced on a global market and pretty much the price is the price -- you can't put your oil on the market for a higher price and expect it to sell.

What a tax does do is make it economically infeasible to extract oil from certain sites.   If a $5/barrel tax is instituted, oil is trading at $120/barrel, and it costs more than $115/barrel to extract the oil, the oil will not be extracted -- after paying $115/barrel to extract the oil and the $5/barrel tax, they wouldn't be able to sell at the market price and make a profit.  All oil that can be extracted for between $115/barrel and $120/barrel will not be extracted if the tax is levied but will be if it is not.

Answer 4

It will not reduce the cost of gasoline. In the long run it will increase it because it reduces industry ROIC, which will mean less capital investment, exploration and recovery of oil in the future.