How about a supertax on Hollywood profits?
Political 'Windfall'
November 2, 2005; Page A14
Like bellbottoms and disco, all kinds of bad ideas from the 1970s are coming back with the surge in energy prices. Arguably the worst is a "windfall" profits tax on oil companies.
This not-so-golden oldie got a political boost last week when Exxon announced, almost apologetically, quarterly profits of nearly $10 billion -- the largest of any U.S. company in history. Apparently it's not enough that 35% of that profit will flow into the Treasury via the corporate income tax. Momentum is growing to raise $10 billion a year by slapping an extra 50% tax on all profits earned on oil above $40 a barrel.
The lead sponsors of the "windfall" levy are Representative Dennis Kucinich of Ohio and Senator Byron Dorgan of North Dakota. These two are well known foes of business for whom the phrase "windfall profits" is redundant. More surprising is that GOP leaders Bill Frist and Dennis Hastert are also calling for Congressional hearings on oil profits. Bill O'Reilly, the chief economist for Fox News, has also been drilling for "windfall" cable ratings by blaming Big Oil for making too much money.
They all need a history lesson. Back when Jimmy Carter signed the windfall profits tax during the last oil crisis, the results were the opposite of what the politicians intended. The first adverse result, as recently documented by the Congressional Research Service, was that oil companies reduced their U.S. domestic production by 1.5 million barrels a day, or by almost 6%. Exploration for new supplies slowed because the tax,by design, snatched as much as a third of the profit from these investments.
The second effect, as shown in a famous study by Harvard economist Joseph Kalt, found that U.S. reliance on foreign oil increased (by between 8% and 16%) after price controls and windfall profit taxes. Many of those calling for this supertax on Big Oil are the same people demanding that the U.S. become more energy "independent." These are contradictory policy goals.
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