Well, it was the intent of James Pethokoukis to do the usual Carter bashing as he tried to trash something Senator Clinton said:
How about a windfall profits tax on Google? It’s an idea that came to me after watching a video of Sen. Hillary Clinton, speaking at the Democratic National Committee’s winter wing-ding, apparently call for the confiscation of oil company profits. As the front-runner for the 2008 Democratic presidential nomination put it: “The other day the oil companies reported the highest profits in the history of the world. I want to take those profits, and I want to put them into a strategic energy fund that will begin to fund alternative smart energy … technologies that will begin to actually move us toward the direction of independence.” Why stop there? Why not confiscate a portion of Google’s fat annual profits–the company’s 2006 earnings were some $3 billion on revenue of $10.6 billion – and use it for some relevant national goal? … The thing, though, is that these targeted taxes don’t have a great track record. Look at what happened when oil companies were hit with the windfall profit tax that President Carter signed into law in 1980. According to a report by the Congressional Research Service, as recently unearthed by the Tax Foundation, the windfall profits tax–a real bear to administer–had two nasty side effects: 1) It didn’t raise as much money as forecast. Instead of raising $320 billion between 1980 and 1989, it raised only about $40 billion; 2) the CRS determined that the windfall profits tax had the effect of decreasing domestic production by 3 to 6 percent. So the United States had to import more oil than it otherwise would have.
The Tax Foundation document can be found here. But let’s review both of these claims. First, the shortfall in revenues was not due to a decline in production but due to a decline in prices. Does Mr. Pethokoukis and the Tax Foundation think inward shifts of the supply side lower prices? Or do they realize that OPEC raised its production during the 1980’s? But let’s accept the second premise and turn the microphone over to Dean Baker:
Well, if U.S. production was reduced by 3 to 6 percent for 5 years, this would have lowered total output by between 500 million and 1 billion barrels over this period. (This assumes annual domestic production of about 3.3 billion barrels a year.) Of course, if we didn’t pump the oil out of the ground back in the late 70s and early 80s, that means it is still in the ground available for future use. That sounds good to me. The other major indictment of the tax was that it raised much less revenue than had been projected. The key to this part of the story was that oil prices collapsed in 1982. I’m not sure that anyone wants to attribute this collapse to the windfall profit tax (higher prices means reduced demand), but if that’s the claim, I’m not sure that many people would have been upset with the outcome.
Crticizing President Carter for his price controls is one thing, but when this crowd bashes his profits tax using these stale arguments, they show they know nothing about either the facts or basic economics.