With Obama and McCain arguing about who is more serious about a "windfall profits tax" on oil companies, let's revisit what happened when this exact law was passed in 1980. According to a recent article
in Investors Business Daily:
"Over the entire 1980-1986 period," the study said, "the (windfall profits tax) reduced domestic oil production from between 320 million barrels . . . and 1,268 million barrels." "The effect of reducing domestic oil production was to increase the level of imported oil."
At the time, the U.S. imported about 30% of its oil; today, we import about 60%. In part, that jump in oil dependency was due to the huge tax advantage we gave foreign oil companies in the 1980s — and to the continuing advantage we give them today by refusing to let our oil companies produce more crude from our own reserves.
By the way, if they try to sell you on the idea that this will be a deficit-cutting move, don't believe it. Revenues from the windfall tax were far less than expected, because producers pumped less and nontaxed imports flooded our market. Compared with a forecast of $393 billion in windfall tax revenues from 1980 to 1988, Congress got a mere $80 billion.
(This study actually claims that revenue was only $40 billion, or 10% of the projected amount.)
In short, the windfall profits tax is a loser — on every level.
Likewise, the Senate's proposals for new penalties on "price gouging" are also fated to fail. This we know because when Jimmy Carter tried price controls, they resulted in massive shortages, blocklong lines at gas stations and, ultimately, gasoline rationing.
Knowing what we do, it's unfathomable that Congress would ponder a return to '70s-era energy policies that nearly destroyed our economy. But that's exactly what it's doing.