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Windfall Tax or Downfall Tax?

By: Ben Needles

Unbelievably it is a common notion that oil companies have enormous profit margins and deserve to have much of it taken and given to the government through a windfall profits tax. This idea is promoted by many politicians, such as Barack Obama, as a way to fund alternative energies. Unfortunately he has not thought this policy through sufficiently.

Taxing a corporation, unlike taxing the public, can have some unexpected effects such as a company producing less, and prices increasing on their goods more than if the public were taxed at sale. Regardless of who you tax its a well known fact that any tax is ultimately on the people. The people bear the burden of new taxes and the people suffer the costs.

Adding a middle man into the situation only worsens it. A tax of 18 cents per gallon on gasoline would cost consumers 18 cents per gallon, but if you tax a corporations profits an amount that gets you the same amount of revenue the ultimate tax on gasoline will likely be 19 cents. Why you ask? Because middle men breed inefficiency. A tax on gasoline is a flat amount but a tax on an oil companies profits is an incentive to produce less, slow exploration, cut jobs and reduce salary to attempt to maintain their profit margins.

For example a man is digging a hole. He sticks his shovel in the ground and digs up some dirt. Then instead of throwing it down next to the hole he shovels it into a bucket next to him which he needs to empty after each load of dirt. Which one of these is a more efficient way to get the end result? This also requires the man to work harder to achieve the same results which puts greater strain on him to maintain his capacity. He does this by trying harder which tires him even more quickly requiring him to slow down eventually.

In the same way an oil company can try and maintain their profit margins but in the long run this will require them to cut costs by cutting exploration and jobs. This is to say that a tax that would cost the American public only 18 cents per gallon if levied on their purchases would cost the American public 19 cents per gallon if levied on the corporation selling the gas (19 cents is just an example).

Either the oil companies cut costs or raise prices. Raising prices would make domestic oil companies less competitive against foreign ones as well and further hurt their profits, as was the case during the presidency of Jimmy Carter. We cant have the best of both worlds. We should enact a pay at the pump tax which will tax people who guzzle gasoline more than those who are frugal with it and maintain corporate profits rather than just give away our oil business to foreign companies. Its a tough situations and that calls for hard decisions but not stupid ones.

Article Source: http://www.articles4meandu.com

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Jay discusses real solutions to real problems within America and covers current events at hotfixamerica.com

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