What Do You Think of Obama’s Emergency Economic Plan?

August 2, 2008

Reading Assignment: Obama’s ‘Emergency’ Economic Plan

Sen. Barack Obama (D-Ill.) on Friday announced an “Emergency Economic Plan” that would give families a stimulus check of $1,000 each, funded in part by what his presidential campaign calls “windfall profits from Big Oil.”

Details are in this six-page policy paper (PDF).

The first part of Obama’s plan is an emergency energy rebate ($500 to individual workers, $1,000 to families) as soon as this fall.

…funded in part by what his presidential campaign calls “windfall profits from Big Oil.”

I have to hand it to Obama. He’s quite the skilled politician. He knows that Americans aren’t happy with big oil and would just love to get even with them by getting some of those “windfall profits” (how exactly would we define “windfall profits?”).

Hey! I have an idea! Why don’t we just nationalize big oil?????? Let’s nationalize every industry and then let our government just dole out all the profits to us as they see fit! Let’s give everyone the same dollar amount and equalize everything.

Why don’t we take “windfall profits” from lawyers who win really big cases and use them to support national ecomic causes? Hmmm… I wonder.

Related:

While putting this post together, I found this NPR interview with Joseph Thorndike, director of the Tax History Project at TaxAnalysts.com, about the history of the windfall profits tax.

28 responses to What Do You Think of Obama’s Emergency Economic Plan?

  1. I thought we lived in a capitalist society. Why should companies get penalized for making a profit? Was there something illegal done by them? We’re finally catching up to the rest of the world on gas prices and everyone is crying about it. The best thing we can do is allow domestic drilling. The market will take care of itself over time. We don’t need the govt’ to screw things up.

  2. You do of course realize that oil companies pay lower taxes than just about any other industry in the US’s economy? Why don’t we just cut the oil companies tax breaks out and charge them what every other business is charged? That would give the US a ton of money.

  3. Under the Bush regime, the airlines got a bailout, Wall Street got a bailout, Big Oil got billions in profit, the war machine got billions in profit, Home Owners got a bailout. See the pattern?

    I don’t care much for Obama’s politics, liberal views or social programs but I sure as hell want to see an end to GOP in elected offices in this country!

  4. I think that when Exxon/Mobile reports record profits of all time for any business almost every quarter, that might be considered windfall profits. The oil companies are nothing but a price fixing cartel. I think some serious, Teddy Roosevelt-style trust busting is in order.

  5. I’m relatively liberal (at least I used to think I was) and I’m not all that comfortable with the idea of a windfall profits tax. At the same time, I’m especially unhappy with the significant subsidies the oil companies are getting, though I’ll admit I don’t know a lot about that. Why not axe the subsidies to an industry that’s doing quite well, and avoid these somewhat random taxes? Actually, what I want to see is a comprehensive carbon tax / energy policy that could (1) extract money for now and (2) help wean us from oil, hopefully. At least it’s on more ground than “you’re making too much money.”

  6. What a dumb idea! What company would want to be in a country that taxes you if you are profitable.

  7. JLP: this time I completely agree with you:)
    One shall steal as much as possible while the kleptocracy lasts…

  8. I wish the US tax system was set up so I could pick which parts of the government I want to finance. I know that I would certainly not fund welfare or other giveaways.

  9. Rob, sadly, you’ve drawn the argument to an illogical conclusion. Surely a few other industries are posting profits? Just checked. They are. 😉

    Think about it like this: suppose the oil industry paid taxes equal to the rate charged other industries? That would bring capitalism closer to a reality in the oil industry. Right now what we have _is_ government meddling and making a mess of things – speaking to Patrick’s point.

    One way to look at this proposal is this: instead of the federal government pocketing all of the income from fairly taxing the oil industry it’s going to give some back to tax payers directly.

    I’ve personally done some math on what this kind of stimulus would mean to me. If my family receives the proposed $1000 I can pay off my credit card debt in this calendar year. That’s exciting and puts me in the position to spend responsibly in 2009. That’s something all capitalists will be happy about. 🙂

  10. Obama is sounding more and more like a socialist, a Marxist. His ideas are anti-capitalism and they will cause more business leaders to just leave the country and find another place where they can create a profitable business. In this great time of need, Obama is using ideas from communism. The ideas of socialism and communism have shown they result in collapse and chaos. Why are we even entertaining leaders with these ideas?

  11. Obama thinks all animals are equal, although some pigs are more equal than others.

    I am a recent graduate from Europe and I recently purschased Vangauard Total Market as one of the building blocks of my index portfolio. Long story short, I own about $600 of ‘Big Oil’ companies.

    Now, I wonder, what did I do wrong to have my money stolen and handed out to welfare programs that I don’t support and aren’t even constitutional as far as I understand the American constitution?

    Obama needs to realise that ‘windfall profits’ are owned by and paid out to regular people! Moreover, big profits are always good, regardless of ownership structure!

  12. it’s been largely agreed that the stimulus checks caused some economic activity, but it’s also believed that the net effect is just postponement of economic retraction. so i’m an obama supporter but i’m not sold on more stimulus checks. does it matter if they’re ‘energy’ “rebates”? every time something goes wrong we suddenly deserve money and we want to call it a ‘rebate’? sure it’s bonkers. he’s still my pick. hmm read the barrons interview with roubini and realize the socialist giveaway to the rich is already underway.

  13. Richard,

    I respectfully disagree.

    1. We are in the credit crunch now because we have had years of cheap credit. The FED is responsible for keeping interest rates too low. In a free market, interest rates would never have fallen to a degree where borrowing was almost free. Don’t blame capitalism for the flaws of monopolised/centralised banking.

    2. All monopolies that reduce welfare are created by the state. Big Oil is no exception. If you want to eliminate windfall profits, eliminate all competition and antitrust laws. Every law costs time and money to handle, for which economies of scale can be achieved, thus socialism is favoring the big companies. Also, antitrust case are most often started by a market leader to prevent a price breaker from growing. That price breaker, who increases welfare, is short on money (every growing company is) and is limited because of the law suit and has a harder time raising capital because of uncertainty attached to it too. If a monopoly happens in a free market, it is because everybody wants to use the product. Free entry is all it takes to make markets work. No government needed.

    3. If you introduce ‘a bit of socialism’, you make things worse. I believe in unintended consequences. For example, socialists would vote to outrule child labor. The reality is that these kids in poor countries will have to go in child prostitution or drugs traffic to make a living. This is than blaimed on capitalism and politicians vote a war against drugs and prostitution. All this does is making drugs more expensive and thus profitable for the maffia. If you would legalize everything (drugs, child labor, organ trade, prostitution, …), it wouldn’t exist in a free market. In a free market, there is work for everybody, always been and always have been. Current unemployed people are often not skilled enough to make minimum wage, and thus nobody hires them because they are not allowed to thanks to that ‘social’ law, and these people are forced to live a dependant life of welfare. Long story short, socialism is communism in installments and you can not outrule a bad thing because it will be replaced by something worse (by definition, because given the choice, there were people who preferred to do the thing you outrule over the other thing they are forced to do now).

    4. Of course the current democratic system is favoring the powerful. The majority is dictating the minority. You wouldn’t have this in a constitutional republic where government doesn’t interfere in the market. Nobody would have an incentive to pay politicans. Again, you are blaming capitalism/freedom while there is a lack of it.

  14. 3. I don’t follow your rational here. I don’t see if we regulate and standardize certain actions the are destructive to capitalism, I don’t see that as a bad thing. Just because those who didn’t want the rules will be disappointed and be restricted in their destructive behaviors is not a good rational for not imposing them. Yes, we have to be aware of unintended consequences of any restrictions. They too should be addressed to the extent we can see them. Like in chess, any move you make you had better be thinking several moves in advance. However, it can be done. People win at chess every day.

  15. The last thing our economy needs right now is more taxes. If you take “windfall” profits from companies, it will not result in CEOs earning less. Additional taxes on companies affect average investors – all of us invest indirectly in this companies via index or value funds in our 401K, even if we don’t own their stocks. But it also affect raises for people who work for these companies, and money invested into new exploration. Which is the last thing we need right now. Anybody who works for a publicly traded company knows that a couple of earning reports not meeting Wall Street expectation often results in layoff. So why some people should lose their jobs to get money to some other people?

    Another part of Obama’s plan is to let 15% tax rate on stock dividends expire and maybe to increase this tax even further. These money are already taxed twice – the company pays taxes on them, and we pay taxes on them. So now the rate for us is going to go up. Taxing dividends is certainly going to help the economy. NOT.

    As to another rebate helping the economy. A poster above talks about repaying a credit card bill. Why this is a good thing, how is this going to help the economy? And if as some posters above says the government simply gives some of the taxes back to us, how come those of us who actually pay more in taxes get nothing? Then there is a whole waste of money on sending more “you may be getting a rebate” letter.

    I don’t particularly like Mc Cain either, not after his comments on health care – he can dismantle what we have and give us nothing back, but I think Obama’s plan will be a disaster. Carter comes to mind.

  16. We will hear more promises by the candidates (Obama in particular) of actions that are perceived by the masses as taking from the “haves” and giving to the have-nots. These promises attract votes because these same masses fail to perceive that that no President can cause this to happen. All he/she can do is promise not veto an attempt by Congress to redistribute wealth in this way. Regarding this particular promise, unless the so-called “windfall profits tax” is imposed as a cap on profit margin (probably unworkable, short of nationalization of the oil industry), all it will do is raise prices at the pump for everyone.

  17. Casey, a capitalist does not like taxes and he/she certainly does not like the idea of redistributing wealth.

    The stimulus check is not going to help anything. It will result is higher gas prices, lower returns for stock investors and will certainly not help the “average joes” working for the oil companies.

  18. I wish the candidates would talk and focus more on better spending, which is really the root of many of the problems. I would have no problem paying my fair share of taxes if I saw that the money was being used responsibly.

    But instead, over a third of my pay goes gets thrown into a black hole of spending where I see little benefit, and probably will see even less of a benefit in 30 years when I try to take advantage of the social programs I paid into.

    The government is always saying we need to be fiscally responsible, and that corporations need to not only be fiscally responsible, but act in their shareholder’s best interests… yet the government can’t even heed their own advice and thinks the solution is to make us pay even more.

    It doesn’t matter who’s elected or who controls congress, because until something is done about government spending, we’ll be in bad shape.

  19. So many people seem bent on punishing “big oil” for their profits, but I don’t remember anyone shedding a tear for them in the 80’s when a barrel of oil dropped to $10 and they had to cap wells because it was no longer profitable to keep them open.

    As for Obama’s energy plan… How does giving people $1,000 increase production or decrease demand?

    Like it or not, a large part of the problem is simple supply and demand. Vilifying “big oil” doesn’t do a thing to increase production, limit demand or bring about alternative energy.

    Let’s suppose Obama is elected and we all get $1,000 to ease our suffering. That would probably help offset some of the rise in oil/gas over the past two years. what happens when prices continue to rise? If OPEC is really controlling the price, wouldn’t they just increase it because now people have more money to spend on gas? at one point does he run out of money to give? And what happens when we do eventually run out of oil?

    This is not a plan, it’s simply rhetoric designed to distract the voters from solving the problem.

  20. It’s a dumb idea – the kind of idea politicians throw out when they are pandering for votes. But it will buy him some votes because some of the electorate are dumb enough to think this is a good idea, and greedy enough to want something for nothing.

  21. Can any one please explain what they understand to be meant by “windfall profits”? I have a problem with this term and what I was taught as a business’ profit margin. What is a “windfall” profit anyway? How does it differ from your everyday, run of the mill profit? Is it some absolute number, a matter of return on equity or sales — or does it merely depend on who earns it?

  22. Luis,

    It’s kind of a grey area. If you listen to the interview I linked to in the post, the tax historian says they would use some sort of benchmark and then anything over that would be considered “windfall.”

    I’m with you though, I HATE THE TERM! All it will do is encourage companies to hide stuff.

  23. Let’s see, we have a world recession, and a national recession. The dollar is at its lowest value since the great depression. We are witnesses to the largest transfer of wealth from one country to another in the history of the world. 3.5% of our GNP is used to pay interest on the largest national debt in the history of the United States.

    Foreign interest now almost holds more stocks and bonds than Americans not to mention a large percentage of what little manufacturing we still do. We have been basically been reduced to a nation of salesmen for other nations that are scooping up America in monumental proportions.

    So, what do I think about Obama’s economic plans? Let’s see, he wants to penalize business that make profits, raise taxes on the bad business that employ America, and stifle energy exploration and growth in the name of conservation. All of this being “quarterbacked” by a two-year Legislator who is yet to even chair a committee in Washington… Hmm that’s a hard one.

  24. Obama keeps talking about”Change”, the only thing he has said positively is that he will increase Taxes on “the Rich” (he doesn’t reveal the income he “thinks is rich) and, he will tax the profits of the oil company which any fool will know that
    the only thing the oil companies will do is raise the price of oil and gas.

  25. God help us all if Obama wins.But then again I wonder what it would be like to live in a socialist country lol

  26. Has anyone researched what windfall profits taxes did in the 70s? They actually INCREASED our dependence on foreign oil. That’s a step backward, not forward. Seems Obama’s talking out both sides of his mouth when he says he wants to decrease our foreign oil dependence yet institute this arcane windfall profits tax.

    Do your homework, BO.

  27. Sorry, I typed too quickly and didn’t proofread well. It was the windfall profits taxes of the 80s, not the 70s.

    Here’s more:

    Over the past 25 years, oil companies directly paid or remitted more than $2.2 trillion in taxes, after adjusting for inflation, to federal and state governments—including excise taxes, royalty payments and state and federal corporate income taxes. That amounts to more than three times what they earned in profits during the same period, according to the latest numbers from the Bureau of Economic Analysis and U.S. Department of Energy.

    These figures do not include local property taxes, state sales and severance taxes and on-shore royalty payments.

    Further, according to the Congressional Research Service (CRS), the 1980s windfall profits tax depressed the domestic production and extraction industry and furthered our dependence on foreign sources of oil.

  28. It is impossible to eliminate our dependency on oil now. We need to realize that this is a long term problem. Oil from off shore drilling will not be available for 7-10 years, not a drop. It is not going to do anything to help now.

    Advancing existing technology, developing renewable sources of bio fuel (and I use sugar as an example) that will not drain the food chain, and consevation to reduce demand will help now.

    Funding these projects as well as re-vitalizing infrastructure projects can come from windfall profit taxes on the oil companies and savings from reduced activity in Iraq.

    There are millions of fossil fuel vehicles that can be converted. Production and instillation of these (conversion kits) as well as developing the alternitive technology plus the infrastructure repairs creates jobs. Americans working, free from oil dependency seems like a huge step in the right direction to me.

    These measures can be effective in the near future, not 7-10 years which is what the new off shore drilling will take. Elimination from oil dependency, not continuing it should be the goal. If the oil companies think they will not be able to sell the oil the price will go down, lets face it , they are in it for the money.

    Do not be surprised to find the oil companies trying to obtain the rights to this technology to prolong our dependency or developing it themselves.

    Furthermore, check this clash videos I found yesterday about the US Presidential candidates have talked taxes. Well, it’s entitled Obama v. McCain on Taxes. Watch these statements – then vote in http://clashorama.com/index.php?id=194