Senator Clinton wants to strip oil companies of some or all of their (not really so) excessive profits to funnel the money into alternative energy research. James Pethokoukis of USNews.com offers an observation that such logic could be applied to any business.

How about a windfall profits tax on Google? It's an idea that came to me after watching a video of Sen. Hillary Clinton, speaking at the Democratic National Committee's winter wing-ding, apparently call for the confiscation of oil company profits.

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Why not confiscate a portion of Google's fat annual profits–the company's 2006 earnings were some $3 billion on revenue of $10.6 billion–and use it for some relevant national goal? The search-engine company is, after all, profiting from technological infrastructure it didn't even build, an "information superhighway" (to use a quaint term) that came out of a government defense project. It's time to pay Uncle Sam back. When Sen. Barack Obama officially announced his own presidential bid last weekend, he called for a new Internet initiative. "Let's lay down broadband lines through the heart of inner cities and rural towns all across America," Obama said.

He points out, of course, that these profits could then be used to create more bandwidth for the masses at little or no direct cost to them. And why not -- we all know that greedy dot-com entrepreneurs are simply ripping off the little guy to make their obscene profits, right? It isn't like they really provide any sort of actual service in return for the money they make, nor do they really need those profits to keep their business going in the future. These profits are a never-ending supply of cash for government to do good with -- or at least do something with.

Which, of course, leads us to the problem of such windfall profits taxes. They are nothing of the sort.

According to a report by the Congressional Research Service, as recently unearthed by the Tax Foundation, the windfall profits tax–a real bear to administer–had two nasty side effects: 1) It didn't raise as much money as forecast. Instead of raising $320 billion between 1980 and 1989, it raised only about $40 billion; 2) the CRS determined that the windfall profits tax had the effect of decreasing domestic production by 3 to 6 percent. So the United States had to import more oil than it otherwise would have.

Oops! They simply eliminate profits and exacerbate the "problem" they are intended to "correct".

So Senator Clinton, go back and take Economics 101 -- and Senator Obama, don't get any ideas as you read the column. As Adam Smith pointed out over two centuries ago -- government intervention in the economy tends only to harm the natural structure of the market, and harm all consumers in the long run.

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Posted by: Greg at 04:23 PM | Comments (1) | Add Comment
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