If oil companies conspired to restrict production and drive up prices, that would be highly illegal and outrageous. But they don’t have to when the totality of public policy is doing that for them.
I just read the Catherine Rampell article Matt linked to. I agree with her on immigration, and that stimulus checks were probably too big, but I’m torn on the tariffs.
Stupid question: when people call for Biden to lift the remaining Trump tariffs, are they effectively talking just about tariffs on China? Most of the coverage of this issue I’ve seen focuses on China tariffs, and I know Biden has made deals with Japan and the Europeans to cut or eliminate at least some of the tariffs on them. But are there any significant non-China tariffs still left?
If it’s just China, it’s worth keeping them. Free trade with most of the world makes sense, but the more the US decouples from China (and punishes Russia economically) the better. National security outranks capitalism, even when inflation is high.
I hope Biden deeply regrets his promise not to raise taxes on anyone making less than $400,000. By all means tax the rich more, but you can’t get enough just from them. The upper middle class needs to pony up, too. One group who really deserves some tough love are the suburban Democrats who love the SALT deduction so much.
I don't quite get this. If it's a one-time snagging of profits this year then it doesn't have any marginal impact. If it's permanent law, then isn't it still a marginal tax increase from 100% of last year's profits up to 200%? Or, maybe what's contemplated is that the tax on that income is only applied once the company hits double the prior year's profit. Then isn't it a very very large marginal tax on that additional dollar that gets the company to 200%? Which would create the kind of disincentive you're trying to avoid? Maybe I don't understand what is being proposed.
This kind of tax is still absolute poison to incentives because it creates the precedent that the government might follow again. It's the reason that it's so hard to build things like mines in developing countries. The concern companies have isn't that the laws in the books are necessarily bad, it's that the government will change the deal after they invest a billion dollars.
My preferred mechanism for taxing large corporations is actually very simple: any corporation whose market cap exceeds a certain size must issue non-voting shares equal to X% of the company's value each year, and give them to the government. The government then sells the shares to receive its tax revenue.
It's basically like a corporate wealth tax, except that it's paid for through shareholder dilution rather than actual cash, but unlike and actual wealth tax, a system like this is brutally simple. If investors value a company at $2 trillion and the tax rate is 1%, the government gets $20 billion of revenue, and no matter what shenanigans a company goes through, with accounting, stock buybacks, shell companies overseas, etc., as long as investors value the company at $2 trillion, they can't avoid it.
The only concern I see immediately is that it might discourage some private companies from going public, which would have to be mitigated somehow.
Of course, in reality, corporate lobbyists would see to it that a tax like this never sees the light of day (and, if it did, that it would be so full of loopholes as to be worthless). But, it is nevertheless an interesting thought experiment. In general, a revenue swap, where large corporations pay more in tax, while individuals pay less, seems like a good idea, if it could actually be done.
The problem with this gimmicky stuff is that it just creates busywork for everybody. Corporate lawyers and accountants are the big beneficiaries, who will run around finding ways around the taxes. The result is more money spent for nothing (waste) which reduces productivity and increases prices more. The way out is productivity gains and this is the opposite. At best a very leaky sieve.
This post is a little bait-and-switchy in that it first talks about what message the Dems should take to the voters in the midterm and then spends most of the time talking about the mechanics of taxing windfall profits (well, consistent with the post title, at least). I want to stay with the bait, and the need to say something.
Do the Dems need a midterm message? Of course. Will it work? Of course not.
Worked like an anti-charm. The House Republicans wound up going from down 52 seats to down 104 seats(!). They only lost net one seat in the Senate, but the Democrats were defending 20 seats to their 13 (and the Republican victories were sooo narrow: all but one got under 55% of the vote). The Republicans lost net 7 governor's races.
I am constantly struck at the sheer pointlessness of ESG investing. What is the point of not investing in oil companies if your government proceeds to subsidise oil production, and goes down on bended knee to Saudi Arabia to increase production? What did you gain, other than a poorer pension fund performance that you will no doubt want the government to put right when you retire?
I often critique Ezra Klein. I was just listening to his podcast and he was making the point liberals need to figure out how to more efficiently build things. As someone who works in the “building infrastructure” space - totally agree. This is a YIMBY issue but applies to much more than just houses. Our system is mucked up with administrative nonsense that makes very little positive difference to the outcome of projects.
We should be able to build more useful things for less money and faster. Democrats control the administrative state that is mucking up the system. It’s time for them to change it.
Training government reviewers on what is a meaningful comment and what is nitpicking would be helpful. I just spent a year trying to get a federally funded project (supposedly shovel ready) approved for bidding as state reviewers picked its carcass like buzzards making sure every word on every page was properly spelled and punctuated. It’s crazy! All this while we have high inflation. How much did they cost the project? This is happening on projects all over America.
When Ezra was talking about this he sounded like Bill Oreiily. But he’s right.
I agree that it can often make sense to do real work (like design or even some construction) in house. I don’t have a government workers are just inferior perspective. Many government workers are very good at their jobs. I think the problem is more systemic. Death by a thousand small cuts.
Everything is both over and under regulated. Overregulated when civil servants need make-work to justify themselves, underregulated when it might require them to act as an antagonist to motivated and well financed crooks.
For example, you get things like blatant cryptocurrency scams which are allowed to proliferate unchecked because the SEC and international equivalents just aren't bothering. These things are Ponzi schemes, and the cryptocurrency part is just technobabble slight of hand rather than any innovation.
I mean, a scam called Celsius just imploded in the last day or so, and this was the video they used to market the thing, on YouTube since January last year:
OK, let's get the disclosure out of the way; I've been a Chevron shareholder for about a decade and have owned Exxon until exiting four years ago. Throughout this time, I have seen profits get whipsawed for the simple reason that oil companies do NOT control the price of their product. The world market for oil does. I've seen earnings years when both Exxon and Chevron barely eked our a profit. The CEOs did not moan and groan but continued to run the companies the best they could.
Americans, to be blunt, suffer from the delusion that gas should be plentiful and cheap. Right now America is self-sufficient in energy, there are no lines for gas (and I've been through both of the supply crises). Would a windfall profits tax impact the current supply situation? Unlikely unless the companies just stopped pumping oil and gas which clearly would be problematic.
I keep returning my favorite hobby horse, implementation of a national VAT. If we are taxing 5% of sales across the board, clearly more money will come from $100/barrel of oil than $50/barrel. You don't even need to consider a windfall profits tax as the sales tax just makes more money at the higher price point. Occam's Razor in action !!!!
Introducing ad hoc "one time" taxes to claw back profits you deem unreasonable is the worst version of populism. Predictability is very important to business investment. And if you do it once, it seems pretty certain you'll do it again.
Additionally, this policy would further highlight the animus that the democrats have towards fossil fuels specifically. Why not a one time tax on people who have profited from unreasonable real estate gains? Or own a fertilizer factory? Or futures contracts on lithium ore? But no, it is oil companies specifically. All the normies who already suspect that the hill staffers secretly enjoy the $7 gas price as they ride their Volts and scooters will see exactly what is going on.
The phrase "stimmie checks" needs to be retired immediately. And by retired, I mean taken out behind the SB offices, kicked for a while, then thrown into a dumpster. And the the contents of the dumpster are lit on fire.
“ One idea is that the revenue could offset a federal gas tax holiday, which is appealing politically because it directly connects to pain at the pump.”
That can’t work can it? Gasoline has very low elasticity of demand. Prices need to rise a lot for demand to fall a little. If you reduced the tax prices would have to rise to compensate to keep demand low, right?
This probably won't work to increase production for reasons others here describe. What will work better are two things I mentioned on yesterday's post. One is the Biden admin should start signaling to Wall Street and investors that it is okay for new production to begin happening. Currently, as MY wrote, Wall Street is pushing oil companies to maintain "capital discipline," paying off debt and returning money to shareholders. They aren't investing in more production because Wall Street has been told oil is a dying (and evil) industry, and is responding accordingly. But this would hurt Democrats with their base, so other thing the Biden admin can do is begin paying oil companies directly to bury CO2. Right now, really the only CO2 being buried is through "enhanced oil recovery" processes, and there isn't a lot of it. If it was set up as a long term government program (which it should be) it would signal to Wall Street and oil companies that they would still have a market in 10, 20, 30+ years, and would probably invest more in production right now.
God I really hate the idea of taxing industries that you just happen not to like. Policy and politics aside, it's just punitive and gross.
If oil companies conspired to restrict production and drive up prices, that would be highly illegal and outrageous. But they don’t have to when the totality of public policy is doing that for them.
I just read the Catherine Rampell article Matt linked to. I agree with her on immigration, and that stimulus checks were probably too big, but I’m torn on the tariffs.
Stupid question: when people call for Biden to lift the remaining Trump tariffs, are they effectively talking just about tariffs on China? Most of the coverage of this issue I’ve seen focuses on China tariffs, and I know Biden has made deals with Japan and the Europeans to cut or eliminate at least some of the tariffs on them. But are there any significant non-China tariffs still left?
If it’s just China, it’s worth keeping them. Free trade with most of the world makes sense, but the more the US decouples from China (and punishes Russia economically) the better. National security outranks capitalism, even when inflation is high.
I hope Biden deeply regrets his promise not to raise taxes on anyone making less than $400,000. By all means tax the rich more, but you can’t get enough just from them. The upper middle class needs to pony up, too. One group who really deserves some tough love are the suburban Democrats who love the SALT deduction so much.
I don't quite get this. If it's a one-time snagging of profits this year then it doesn't have any marginal impact. If it's permanent law, then isn't it still a marginal tax increase from 100% of last year's profits up to 200%? Or, maybe what's contemplated is that the tax on that income is only applied once the company hits double the prior year's profit. Then isn't it a very very large marginal tax on that additional dollar that gets the company to 200%? Which would create the kind of disincentive you're trying to avoid? Maybe I don't understand what is being proposed.
This kind of tax is still absolute poison to incentives because it creates the precedent that the government might follow again. It's the reason that it's so hard to build things like mines in developing countries. The concern companies have isn't that the laws in the books are necessarily bad, it's that the government will change the deal after they invest a billion dollars.
My preferred mechanism for taxing large corporations is actually very simple: any corporation whose market cap exceeds a certain size must issue non-voting shares equal to X% of the company's value each year, and give them to the government. The government then sells the shares to receive its tax revenue.
It's basically like a corporate wealth tax, except that it's paid for through shareholder dilution rather than actual cash, but unlike and actual wealth tax, a system like this is brutally simple. If investors value a company at $2 trillion and the tax rate is 1%, the government gets $20 billion of revenue, and no matter what shenanigans a company goes through, with accounting, stock buybacks, shell companies overseas, etc., as long as investors value the company at $2 trillion, they can't avoid it.
The only concern I see immediately is that it might discourage some private companies from going public, which would have to be mitigated somehow.
Of course, in reality, corporate lobbyists would see to it that a tax like this never sees the light of day (and, if it did, that it would be so full of loopholes as to be worthless). But, it is nevertheless an interesting thought experiment. In general, a revenue swap, where large corporations pay more in tax, while individuals pay less, seems like a good idea, if it could actually be done.
It’s not clear that encouraging de-mergers is a good idea. Which means it’s probably a bad idea.
The problem with this gimmicky stuff is that it just creates busywork for everybody. Corporate lawyers and accountants are the big beneficiaries, who will run around finding ways around the taxes. The result is more money spent for nothing (waste) which reduces productivity and increases prices more. The way out is productivity gains and this is the opposite. At best a very leaky sieve.
The first two links both go to the Rampell op-ed. Did you mean the second link to go somewhere else?
This post is a little bait-and-switchy in that it first talks about what message the Dems should take to the voters in the midterm and then spends most of the time talking about the mechanics of taxing windfall profits (well, consistent with the post title, at least). I want to stay with the bait, and the need to say something.
Do the Dems need a midterm message? Of course. Will it work? Of course not.
Ronald Reagan won a smashing victory in 1980 (11 percentage points, 44 states) and an even bigger one in 1984 (49 states, ~20 percentage points). In 1982, he averaged 43% job approval (about what Biden has averaged over the past year). He went out on the hustings with a strong forceful message: "Stay the course!" (https://www.washingtonpost.com/archive/politics/1982/10/14/stay-the-course-on-economy-reagan-urges/e21e4b9d-658f-4610-bb72-f4274b3376f6/)
Worked like an anti-charm. The House Republicans wound up going from down 52 seats to down 104 seats(!). They only lost net one seat in the Senate, but the Democrats were defending 20 seats to their 13 (and the Republican victories were sooo narrow: all but one got under 55% of the vote). The Republicans lost net 7 governor's races.
So, sure, say what you want. It won't matter.
I am constantly struck at the sheer pointlessness of ESG investing. What is the point of not investing in oil companies if your government proceeds to subsidise oil production, and goes down on bended knee to Saudi Arabia to increase production? What did you gain, other than a poorer pension fund performance that you will no doubt want the government to put right when you retire?
I often critique Ezra Klein. I was just listening to his podcast and he was making the point liberals need to figure out how to more efficiently build things. As someone who works in the “building infrastructure” space - totally agree. This is a YIMBY issue but applies to much more than just houses. Our system is mucked up with administrative nonsense that makes very little positive difference to the outcome of projects.
We should be able to build more useful things for less money and faster. Democrats control the administrative state that is mucking up the system. It’s time for them to change it.
Training government reviewers on what is a meaningful comment and what is nitpicking would be helpful. I just spent a year trying to get a federally funded project (supposedly shovel ready) approved for bidding as state reviewers picked its carcass like buzzards making sure every word on every page was properly spelled and punctuated. It’s crazy! All this while we have high inflation. How much did they cost the project? This is happening on projects all over America.
When Ezra was talking about this he sounded like Bill Oreiily. But he’s right.
I agree that it can often make sense to do real work (like design or even some construction) in house. I don’t have a government workers are just inferior perspective. Many government workers are very good at their jobs. I think the problem is more systemic. Death by a thousand small cuts.
Everything is both over and under regulated. Overregulated when civil servants need make-work to justify themselves, underregulated when it might require them to act as an antagonist to motivated and well financed crooks.
For example, you get things like blatant cryptocurrency scams which are allowed to proliferate unchecked because the SEC and international equivalents just aren't bothering. These things are Ponzi schemes, and the cryptocurrency part is just technobabble slight of hand rather than any innovation.
I mean, a scam called Celsius just imploded in the last day or so, and this was the video they used to market the thing, on YouTube since January last year:
https://www.youtube.com/watch?v=bJq_z26wC5E&ab_channel=CelsiusNetwork
OK, let's get the disclosure out of the way; I've been a Chevron shareholder for about a decade and have owned Exxon until exiting four years ago. Throughout this time, I have seen profits get whipsawed for the simple reason that oil companies do NOT control the price of their product. The world market for oil does. I've seen earnings years when both Exxon and Chevron barely eked our a profit. The CEOs did not moan and groan but continued to run the companies the best they could.
Americans, to be blunt, suffer from the delusion that gas should be plentiful and cheap. Right now America is self-sufficient in energy, there are no lines for gas (and I've been through both of the supply crises). Would a windfall profits tax impact the current supply situation? Unlikely unless the companies just stopped pumping oil and gas which clearly would be problematic.
I keep returning my favorite hobby horse, implementation of a national VAT. If we are taxing 5% of sales across the board, clearly more money will come from $100/barrel of oil than $50/barrel. You don't even need to consider a windfall profits tax as the sales tax just makes more money at the higher price point. Occam's Razor in action !!!!
Introducing ad hoc "one time" taxes to claw back profits you deem unreasonable is the worst version of populism. Predictability is very important to business investment. And if you do it once, it seems pretty certain you'll do it again.
Additionally, this policy would further highlight the animus that the democrats have towards fossil fuels specifically. Why not a one time tax on people who have profited from unreasonable real estate gains? Or own a fertilizer factory? Or futures contracts on lithium ore? But no, it is oil companies specifically. All the normies who already suspect that the hill staffers secretly enjoy the $7 gas price as they ride their Volts and scooters will see exactly what is going on.
The phrase "stimmie checks" needs to be retired immediately. And by retired, I mean taken out behind the SB offices, kicked for a while, then thrown into a dumpster. And the the contents of the dumpster are lit on fire.
“ One idea is that the revenue could offset a federal gas tax holiday, which is appealing politically because it directly connects to pain at the pump.”
That can’t work can it? Gasoline has very low elasticity of demand. Prices need to rise a lot for demand to fall a little. If you reduced the tax prices would have to rise to compensate to keep demand low, right?
This probably won't work to increase production for reasons others here describe. What will work better are two things I mentioned on yesterday's post. One is the Biden admin should start signaling to Wall Street and investors that it is okay for new production to begin happening. Currently, as MY wrote, Wall Street is pushing oil companies to maintain "capital discipline," paying off debt and returning money to shareholders. They aren't investing in more production because Wall Street has been told oil is a dying (and evil) industry, and is responding accordingly. But this would hurt Democrats with their base, so other thing the Biden admin can do is begin paying oil companies directly to bury CO2. Right now, really the only CO2 being buried is through "enhanced oil recovery" processes, and there isn't a lot of it. If it was set up as a long term government program (which it should be) it would signal to Wall Street and oil companies that they would still have a market in 10, 20, 30+ years, and would probably invest more in production right now.