Redstate

Posted at 2:06am on May 3, 2008 A Specter Is Haunting Tax Policy . . .

By Pejman Yousefzadeh

Barack Obama has come out against the "gas tax holiday" that is being pushed by Senators McCain and Clinton. Obama's reasoning is defensible; he believes that a temporary lowering of gas prices will increase demand--especially now that we are heading into the peak summer driving period--thus eventually further reducing supply and causing the price to spike. At the end of the day, Obama argues that a gas tax holiday is hardly a short term solution to the problem of high gas prices, let alone a long term solution.

Let's grant that for a moment. What then to make of this?

Democratic presidential candidate Barack Obama's proposal for a windfall profits tax on oil companies could cost $15 billion a year at last year's profit levels, a campaign adviser said.

The plan would target profit from the biggest oil companies by taxing each barrel of oil costing more than $80, according to a fact sheet on the proposal. The tax would help pay for a $1,000 tax cut for working families, an expansion of the earned- income tax credit and assistance for people who can't afford their energy bills.

``The profits right now are so remarkable that one could trim them 10 percent or so, which would turn out to be somewhere in the $15 billion range,'' said Jason Grumet, an adviser to the Obama campaign.

This plan is ridiculous. As I have pointed out before--in incorporating the arguments of others--oil companies don't make as large of a profit as people think and they must contend with an exceedingly volatile pricing structure. What's more; the tax will be self-defeating. Surely, Obama must know that oil companies will only try to find ways to pass the costs of a windfall profits tax on to the consumer. With their lower-than-thought profit margins, this almost becomes a necessity.

Obama has gotten a lot of praise regarding his stance on gas tax and the proposed gas tax holiday. But where is the recognition that his plan for a windfall profits tax will in fact make things a lot worse for people when they have to purchase gas?

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