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Obama's Proposed "Windfall Profits Tax"

August 05, 2008 12:15 AM

On Friday, Sen. Barack Obama, D-Illinois, announced a new proposal wherein oil companies enjoying record profits would face a "windfall profits tax," with the cash passed on to consumers.

I asked the Obama campaign some questions about this today. Here are their answers.

TAPPER: What is a "windfall profit"?

OBAMA CAMPAIGN: Senator Obama believes that while oil companies and shareholders need incentives to run well managed businesses that invest in efficiency and innovation, a significant share of the record profits the big oil companies have been making have nothing to do with their management skill or investment decisions. Instead, it is the result of changes in the price of oil because of factors like supplies in the Middle East, demand in Asia, and disruptions and distortions in the oil market.

Therefore, a well designed mechanism can impose a fee on a small share of these windfall profits without affecting incentives for oil companies and without affecting the price of oil. Indeed, as the Congressional Research Service recently concluded:  “[T]o the extent that a surtax on the corporate income of crude oil producers on their upstream operations could approximate such a [pure corporate profits] tax, this would not raise crude oil prices and would not increase petroleum imports in the short run. While the current corporate income tax is not a pure corporate profits tax, a surtax for oil companies would arguably be an administratively simple and economically effective way to capture estimated oil windfalls in the short run.” [Emphasis added, “The Crude Oil Windfall Profits Tax of the 1980s: Implications for Current Energy Policy,” Congressional Research Service, 3/9/06, p. 32.]

TAPPER: Should such a tax only be applied to oil/gas industries?

OBAMA CAMPAIGN: Yes.

TAPPER: Who gets the $1,000 - any taxpayer?

OBAMA CAMPAIGN: Barack Obama will require oil companies to take a reasonable share of their record-breaking windfall profits and use it to provide direct relief worth $500 for an individual and $1,000 for a married couple.  The relief would be delivered as quickly as possible to help families cope with the rising price of gasoline, food and other necessities. The rebates would be fully paid for with five years of a windfall profits tax on record oil company profits. This relief would be a down payment on Obama’s long-term plan to provide middle-class families with at least $1,000 per year in permanent tax relief.  The Obama energy rebates will: offset the entire increase in gas prices for a working family over the next four months; or pay for the entire increase in winter heating bills for a typical family in a cold-weather state. In addition, Obama has proposed setting aside a portion of a second round of fiscal stimulus to ensure sufficient funding for home heating and weatherization assistance as we move into the fall and winter months.

So. There you have it.

- jpt

August 5, 2008 | Permalink | Share | User Comments (111)

User Comments

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Instead of focusing on the oil companies and fuel costs, McCain has the right idea, focus on promoting jobs. No amount of stimulus or windfall checks will take the place of a steady paying job. I know everyone thinks that the large companies get enough in tax breaks, but the truth is, give them a tax cut and they can create more jobs. Tax them more and they lay off and eliminate jobs. Pretty straight forward. The way to go is FairTax, and then give tax breaks to the large companies so they can create more jobs. AND, if anyone is worrying about those large companies not promoting new positions after a tax break, make it a stipulation for the break. Just a thought.....

Posted by: L | Sep 5, 2008 1:27:40 PM

Where is the "windfall profit" that oil companies are supposedly making? The fact of the matter is that oil companies make a far smaller proportional profit that many other American industries. Why not levy a windfall tax on Coca-Cola or McDonald's or Wal-Mart? Oil companies have made record profits in recent years, but this is not because they make more profit per gallon or dollar, it is simply because, until very recently, Americans have continued to buy more and more and more gasoline. We the People are at fault for the record oil profits, not the oil companies.

So...what does the Obama plan do?? This plan REWARDS those responsible for the oil companies' profits: We the People. We continue to buy gas like crazy, We continue to under-utilize public and other alternative forms of transportation, We continue to demand our suburban commuting lifestyle, and We crank up the heat in the winter and the AC in the summer with all of our lights and electrical gadgets burning brightly. We and our addiction to oil are the problem and Obama seeks to reward us with $1000. And what will we do with our reward...buy more oil?? And then Obama will punish corporations that provide what We the People want; corporations which already make a proportionally small profit.

What's next?? I eat too much pizza, so will Obama punish the pizza makers (who, by the way are providing the service I desire) and then reward me for my addiction with a refund check so I can buy more pizza? Am I crazy, or is this simply the most backwards and idiotic idea I've ever heard from a Presidential candidate?

But, I know Obama is not that moronic, so what's really going on here...ah...it's plain and simple: "Chicken in every pot." Obama intends on using the government bank to buy votes and at the same time blaming the "big bad guy" so he appears to be heroic. Wow. How very Washington of him. So much for a break from the old politics. I think he's been hanging out with the Clinton political machine too long. (In fact, isn't his plan simply a much larger version of the "gas tax holiday" he argued against so brilliantly?)

Posted by: David | Aug 11, 2008 3:07:10 PM

One word. Socialism.

Posted by: Cameron | Aug 7, 2008 2:40:01 PM

I am I mistaken when I think about this plan for a windfall on oil companies to give us all a 1,000 dollar rebate that the oil companies will just make it all back at the pump? They are not stupid and they have always added taxation back to the consumer at the pump. I believe that there is corruption in big oil, but how many people out there know who it is that owns all the alternative energy companies and how many lobbyist and support may be involved in the democratic party. I don't believe the democrats have pure motives here. There is corruption on both sides. We have to study the policies ourselves. Research why we are in dire straights with social security. Much was passed by the democrats to put that in jeaopardy. We need oil, We need alternatives. We don't need a 1,000 dollar rebate gimick that Obama already opposed when Hillary presented it. Let's all work together by researching for ourselves. The internet is full of knowledge and opinion for both sides. We are intelligent and we should vote using our intelligence and conscience.

Posted by: LaRae | Aug 6, 2008 4:15:23 PM

THE CURRENT CONGRESSIONAL LEADERS MUST BE COMMUNIST AGENTS, HAVING BEEN PLANTED IN THE US IN 1945 BY STALIN.

WHAT ELSE EXPLAINS THEIR STUPIDITY AND IN-EFFECTIVENESS.

WHEN PELOSI BECAME TOP DOG GAS WAS $2.10 A GALLON.....

ITS NOT BUSH, ITS NOT CHENEY, ITS THE COMMUNISTS.

Posted by: JAQUEBAUER | Aug 6, 2008 1:20:00 AM

I agree. This man is a fraud, and he's desparately hoping that the ignorance of the voting public will be enough for him to sneak in. It's so insulting to have to read about his plans when you know what he says is patently ridiculous and bald-face lies. He's now proposing to buy our votes with money that he will take from someone else, which in the end costs us plenty, beginning with our dignity.

Posted by: Frustrated Voter | Aug 5, 2008 10:55:54 PM

Seems that during the primaries, fraud nobama said if the oil companies were made to pay the .19 tax, the oil companies would simply add the cost to the cost of the oil. Now that he is not getting anywhere in the election, he wants these same oil companies to give the US citizens something...hmmmm
Sounds like the deal with the Florida and Michigan vote, if it was for Hillary then give them only half a vote. "Now that I need these fools in Florida and Michigan, give them suckers, I mean voters a full vote.."
As I said, FRAUD

Posted by: blackcatsoda | Aug 5, 2008 10:49:02 PM

Yes, windfall profit tax. Big deal. Obama and his cronies will just use that money to keep getting more of themselves elected. He's nothing. He's an insect on the edge of the table waiting to be swatted with a newspaper. And, I am doing everything I can to see that he loses to mcCain after the way he treated Hillary Clinton. He's a waste and I hope he gets buried in November by McCain!

Posted by: Mary Anne | Aug 5, 2008 5:21:53 PM

Dare Nigeria - you are very welcome my friend. Anytime!

Posted by: Frustrated Voter | Aug 5, 2008 2:04:47 PM

Willem van Oranje:

You wrote: "Bollocks. Cellulosic ethanol is chemically identical to ethanol from other sources, such as corn starch or sugar (the word "cellulosic" simply refers to the source material.) It differs only in that it requires a greater amount of processing to make the sugar monomers available to the microorganisms that are typically used to produce ethanol by fermentation. That's the only difference.

Excuse me, but there is a BIG difference between the source of feedstocks for ethanol. Cellulose is a polymer of sugar which is differed only in one carbon's configuration from starch. That is the KEY difference for processing. There are ways to depolymerize starch, but not cellulose. If cellulose can be processed as easily as starches, then the problem of fuel vs. food goes away because you can use non-food parts of the plant for ethanol production. I never said there was any difference between the ethanol made from either cellulose or sugars and starches. You did. Ethanol is ethanol, just as water is water.

You wrote: "Biofuels are used in blends to overcome the other problems you've stated. Corn ethanol, which the US has favored for a long time because of the influence of ADM, is known to be the least efficient ethanol for a very long time. It has an effiency of less than 100 gpa (gallons per acre) where for instance ethanol from algae has an efficiency of 1800 gpa."

Absolutely - you can blend biodiesel, but with what? Petroleum diesel? I thought the idea was to get rid of petroleum diesel??? You can blend all you want, but the fact of the matter is, the biodiesel, which is a fatty acid ester has a shorter shelf life. Once it sees water and some acid, it starts to fall apart to fatty acid, which your diesel engine won't like and survive (Total Acid Number goes up). The current work on ALGAE is NOT ethanol, but for oils harvested for biodiesel. You have to get your facts straight. Algae, when stressed, will produce more oil. But either way, you're still going to have a capacity problem, because you'll NEVER get enough oil from algae at a rate that is cheaper than petroleum.

You wrote: "Biofuels are a temporary fix towards energy independence, not an end solution in terms of global warming. A lot of biofuels also a very bad environmental record. The future is electricity from wind, solar, wave, heath."

I agree only partially. Wind power is expensive because you MUST build a gas powered standby generator to ensure that power is made even when there is no wind. Solar power efficiency is WAY too low to be economical, and if you'll pony up the capital for wave, then I'm with you.

You wrote: "The amount of solar energy reaching the surface of the planet is so vast that in one year it is about twice as much as will ever be obtained from all of earth's non-renewable resources of coal, oil, natural gas, and mined uranium combined."

I completely agree with you, but you're sidestepping the point: HOW will one capture that solar energy?? It won't matter if there is oil gushing outside your front door if you can't capture it before it runs away. The question is HOW. Good intentions won't put gas in my car or yours. We want directions and solutions, not BHO flapping his mouth.

Posted by: Frustrated Voter | Aug 5, 2008 2:02:13 PM

In 1961, Kennedy wanted a man on the moon. He gave NASA pretty much an unlimited budget to get it done.

Incentive.

Obama, on the other hand, calls on the energy faeries, asks them to wave their magic wands and make energy appear.

That and he'll wants to steal from law-abiding companies.

Disincentive.

One worked, the other has already failed.

Posted by: drjohn | Aug 5, 2008 1:04:31 PM

DrJohn: corn-based ethanol has always been touted by the Bush Administration, despite warnings that corn based ethanol is considered less efficient than other types of ethanol (sugar cane, algae, etc.) especially when only the vegetable itself is used and not the whole plant.

Understood.

And I will be the first one to tell you that Bush has made a number of really bad decisions.

Immigration is one. I am hardly content with the way Bush has spent, which is to say he has spent like a Democrat.

Posted by: drjohn | Aug 5, 2008 12:59:37 PM

This is a gimick to get more votes. It certainly will not help lower the cost of fuel.
This man needs to get some new advisors--some with common sense. This is just another of his socialist ideas. Take from those who earn it through hard work and give to those who did not. Such a dud.

Posted by: Mary | Aug 5, 2008 12:43:35 PM

ChrisNBama, I believe you will find that within 48 hours of President Bush's signing his executive order to rescind the previous executive order banning offshore drilling, that the price of oil dropped $10 per barrel.

Posted by: James Danley | Aug 5, 2008 11:39:49 AM

Obama's $1000 rebate is nothing more than a gimick like the gas tax Hillary suggested that he criticized.

The way Obama changes his mind it is likely that rebate will never happen and Obama will blame it on Republicans..

He is desperate for votes so essentially he is saying "vote for me and I'll give you $1000.
There's not enough money to make me trust Obama.
And they way he will raise taxes, we are likely to pay for our own rebate many times.

Posted by: cindy in nc | Aug 5, 2008 11:39:36 AM

Frustated Voter: "Cellulosic biomass is highly abundant, but not convertible to ethanol."

Bollocks. Cellulosic ethanol is chemically identical to ethanol from other sources, such as corn starch or sugar (the word "cellulosic" simply refers to the source material.) It differs only in that it requires a greater amount of processing to make the sugar monomers available to the microorganisms that are typically used to produce ethanol by fermentation. That's the only difference.

Biofuels are used in blends to overcome the other problems you've stated. Corn ethanol, which the US has favored for a long time because of the influence of ADM, is known to be the least efficient ethanol for a very long time. It has an effiency of less than 100 gpa (gallons per acre) where for instance ethanol from algae has an efficiency of 1800 gpa.

Biofuels are a temporary fix towards energy independence, not an end solution in terms of global warming. A lot of biofuels also a very bad environmental record. The future is electricity from wind, solar, wave, heath.

The amount of solar energy reaching the surface of the planet is so vast that in one year it is about twice as much as will ever be obtained from all of earth's non-renewable resources of coal, oil, natural gas, and mined uranium combined.

Posted by: Willem van Oranje | Aug 5, 2008 11:38:04 AM

DrJohn: corn-based ethanol has always been touted by the Bush Administration, despite warnings that corn based ethanol is considered less efficient than other types of ethanol (sugar cane, algae, etc.) especially when only the vegetable itself is used and not the whole plant.

Yet it is the most common type of ethanol in the United States. Why?
Because of Archer Daniels Midlands, ADM.
A huge lobbyist and one of the most prominent recipients of corporate welfare.

In 1995, the Cato Institute already wrote: "ADM has cost the American economy billions of dollars since 1980 and has indirectly cost Americans tens of billions of dollars in higher prices and higher taxes over that same period. At least 43 percent of ADM's annual profits are from products heavily subsidized or protected by the American government."

Posted by: Willem van Oranje | Aug 5, 2008 11:05:25 AM

Enron loophole

Posted by: Mike | Aug 5, 2008 11:02:06 AM

"Nonsense? The fact that the storm bypassed the Gulf of Mexico oil rigs dropped the price of a barrel by over three dollars. Bush lifting the executive ban dropped the price."

Len,

You are making a leap here based on zero evidence. Supply and demand and speculation drive price. The fact that Bush removed the ban THREE WEEKS ago and oil drops the price TODAY is not a causal argument that supports your thesis.

Cheers,

Chris

Posted by: ChrisNBama | Aug 5, 2008 10:50:12 AM

Frustrated Voter,

Even Mccain has not been able to proffer any solution other that drill now, pay less. He doen't sound as someone that holds the magic wand too.

Posted by: Dare Nigeria | Aug 5, 2008 10:43:12 AM

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