Pain at the Pump

IBD agrees: taxing oil profits makes gasoline more expensive, not less:

Senators also want to impose steep penalties on “price gouging” — despite the fact that some 17 separate studies have found it doesn’t exist. The plan amounts to little more than an attempt to impose price controls — a socialist tool dressed up in populist garb.

Democrats hailed their new measure as an attack on “the root causes of high gas prices.” That’s one of the more laughable comments to emerge from the Senate in some time.

As any student who’s taken Econ 101 at the local junior college can tell you, higher taxes don’t encourage production; they discourage it. But Senate Democrats apparently played hooky the day taxes were discussed. They should at least have read the report from their own nonpartisan Congressional Research Service in 2006.

It shows that from 1980 to 1986, the last time the U.S. had a windfall profits tax on oil companies, the results were disappointing. As the chart shows, oil companies were hit hard by the tax. And in line with basic economic theory, they produced less oil, not more.

What’s the real solution? Increase production, decrease regulatory barriers.   As Megan McArdle explains, greater world demand for oil combined with a static supply means that prices are going to rise. And since we’re not going to lower demand any time soon, the challenge is to expand energy production, not grouse and harumph about oil company profits while passing laws that it more difficult and more expensive to fill up our cars.