Tina K. Russell

June 10, 2008

The Tina Russell Economic Money Hour of News Program

Filed under: Uncategorized — Tags: , , , , , — Tina Russell @ 6:33 pm

In my previous post, I talked about the proposed windfall profits tax. As I understand it…

1) For the duration of the energy crisis, oil companies will be limited to making “reasonable” profits, wherever we can manage to set it. (I say bargain hard; we don’t have to worry about them not fighting back hard enough to save a reasonable profit for themselves, given the influence they weild on the Hill.)

2) Oil companies say that the change will have the unintended effect of discouraging excavation and production, which could in turn raise gas prices. (Unintended consequences are a bitch, and common in the blunt and rusty world of law, but I’ve always been wary of any “but it will have the opposite effect!” argument, even if it is sometimes true.)

The problem is, if I have my basic economics right, profits are revenue minus expenditures; that is to say, what you earned minus what you spent. This is to make sure that the oil companies are actually spending the money on improving their operations (incentives are offered to invvest in clean energy, for instance), rather than simply hoarding it for a far-off rainy day while Americans are hurting now. It’s similar to how we require charities to spend at least five percent of their endowments each year (yes, yes).

So, that would put new investment in the “expenditures” category… meaning the windfall tax would encourage, not discourage, it. Basically, it says, if I understand it right, that if the companies don’t take the initiative on investment, the government will. That doesn’t sound like a bad policy at all.

The oil companies’ framing is totally backward. They should invest in a new one.

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