July 1, 2008

Windfall Profits Tax is A Stupid Democratic Party Idea

The question to ask relative to the graphic on the left is; so what? A windfall profits tax is a tax on profits that ensue from a sudden windfall gain to a particular company or industry. Imposition of such a tax is a linchpin of Obama's energy policy. Its also a stupid idea which is every bit as pandering to the electorate as McCain's almost equally stupid summer gas tax holiday.

Lets use an analogy that's easy to assimilate: Before the housing bubble burst, housing prices were on the rise at a rapid clip. Many homeowners who sold at the height of the bubble made sizable gains on the sale of their home basically because they sold at the right time in the market. Maybe you were one of them. Now what would you say if Obama was proposing to levy a special extra tax on those gains you realized? Hell No! In fact, you won't find anybody proposing to tax those gains. My point exactly. What Obama is proposing to do to the oil companies is no different. It's hard to see why oil companies shouldn't make a lot of money when their product is suddenly in short supply. They are vulnerable to weak profits and losses during times of glut. Back when gasoline was cheap, nobody was shedding tears because oil companies were making small or no profits.

Face it folks, its a pander. Moreover, it frankly doesn't have as much going for it as McCain's gas tax holiday. At least with the gas tax holiday, in theory, we save a few pennies at the pump. Obama's plan simply taxes the oil companies more heavily so the government can spend the money on alternative energy research that even assuming the government did that correctly, won't pay off for years. So as a practical matter, it means squat at the pump where you and I are getting mauled on a daily basis.

I'm all for energy policy change, but if we are going to do it, then lets do it right and dispense with the half measures. We need to end US dependence on oil which is an economic drain, a national security weakness and keeps our country locked into a fossil fuels based economy that is bottling up innovative technologies that could change everything. On the one hand, high prices are doing us a lot of damage. On the other, the pain is spurring new approaches, and thats not all bad. As the Motley Fool points out:

"..... back in the 1970s, Brazil relied on the rest of the world for 85% of its oil. The result? Debt ballooned, and rampant inflation became the norm for decades. But those high prices pushed the need for change, and change is exactly what Brazil got. Innovation and commitment to overcoming the oil burden pushed Brazil to energy independence today by way of sugar cane-based ethanol (which is, importantly, far different from the corn-based ethanol made in America.) The oil embargo of the 1970s also pushed Denmark, which was 99% dependent on imported oil, to become one of the world's leaders in alternative energy, such as windmill technology. The important thing to realize is that it's highly doubtful that any of this would have happened if higher prices hadn't spurred people to action."

If we want to fix the problem, we have to go long. Hydrogen and electric car technology is within reach. The US and Canada sit on top of the largest shale oil deposits in the world, larger than Iraq's biggest fields, we just have to figure out how to get it out. McCain makes the point that the Europeans are using nuclear technology and have been doing so for years, so whats our problem? And you know, call me a hippie if you want, but somebody explain to me why we have after several million years on the planet, not figured out how to milk the solar systems largest, most reliable and don't that beat all, FREE energy source, the sun.

I don't know, but seems to me we got an embarrasment of energy alternatives, but we are too damn lazy and short term in our thinking to make it happen. Meanwhile, we ship hundreds of billions of dollars daily to regimes that don't like us much for last century's energy source, the oil crack our country has to have. Obama's my boy, but this aspect of his energy policy is simply stupid.