The Absurd Report

Leave it to the Democratic majority in Congress to fight rising gas prices and growing dependence on foreign oil by imposing a windfall-profits tax on U.S. petroleum companies, while refusing to let them tap America’s vast oil and gas reserves in the Alaskan wilderness and offshore.

Congressional demagogues have always used “Big Oil” as a handy pejorative, but criticizing the oil industry now seems to be a national pastime on Capitol Hill, with both conservative and liberal Democrats piling on.

Part of the new wave of criticism, of course, stems from the fact that oil lagged behind the CPI for decades — serving as an important brake on runaway inflation. Now oil — along with food — is a prime cause of inflation.

Nevertheless, those politicians and pundits who now loudly denounce “Big Oil” for the surge in energy prices should seriously consider the consequences of imposing punitive windfall-profits taxes on an industry that is so critically important to the U.S. economy.

The most likely outcome is that a windfall-profits tax would produce the same result as a similar tax did in the 1980s — reducing investment in domestic oil production.

The windfall-profits tax that was adopted during President Jimmy Carter’s administration drained tens of billions of dollars from the industry, money that could have been spent on energy exploration and production in the United States, and ended up increasing our reliance on foreign oil.

Further, that windfall-profits tax failed to raise a fraction of the revenue forecasted.

In other words, the windfall-profits tax of the 1980s failed miserably, and it would fail again this time around.