Windfall taxes and wealth grabs might sound like victimless confiscatory measures to fight inflation, grow the economy, and lift the impecunious out of the ashes of despair. They are always marketed as effective short-term panaceas to resolve a crisis at hand, although they typically result in exacerbating the predicament and failing to help anyone except politicians and bureaucrats. After a century of the Progressive Era, can anyone endorse the concept of giving the government more money? It has been nothing but blunders and boondoggles since the days of President Woodrow Wilson. You know, the usual.
Windfall Taxes for Energy
Is it any wonder that US energy firms are not ebullient about expanding production at home? President Joe Biden famously promised to put the sector out of business during his 2020 campaign, and has since imposed dozens of policies that discouraged output. One of his first acts at 1600 Pennsylvania Ave. was to put the kibosh on the Keystone Pipeline. And he has enhanced his game against the industry.
In an address to the nation on Oct. 31, Biden accused energy companies of “war profiteering,” contending that the military conflict in Eastern Europe broke energy markets. The administration is now threatening to slap a windfall tax and other penalties on companies that refuse to bolster production. But this public policy pursuit would do the exact opposite of what he intends. By confiscating profits, energy firms would not likely invest more in their operations and productive capacities, meaning less supply on the open market and higher prices at the pump.
That said, Biden is again refusing to tackle the root causes of sky-high crude, gasoline, and diesel prices. The handsome profits that oil and gas companies enjoy now are not causing higher prices. They are driven by what is transpiring in the petroleum markets, which is itself a response to the failed policies of Washington and governments worldwide that developed a green fetish and abandoned common sense. There is also the demand side of the equation: The world wants fossil fuel to heat homes, power automobiles, and transfer goods to stores – and lots of it.
Like tapping into the Strategic Petroleum Reserve (SPR), windfall taxes might be a short-term remedy. Still, they will not address the long-term systemic challenges facing the worldwide energy market. This is not the first time that politicians have submitted a similar proposal. Earlier this year, Sen. Sheldon Whitehouse (D-RI) and Rep. Ro Khanna (D-CA) introduced legislation that would institute a windfall tax of 50% to help fund another stimulus check. They argued that it is “corporate greed” causing price inflation rather than the astronomical fiscal and monetary expansion in the nation’s capital. These superficial solutions kick the can down the road and prevent leaders from understanding why they get it wrong, forcing the public to repeatedly suffer from their mistakes.
Wealth Grabs
Wealth grabs, particularly when targeted at billionaires, are popular instruments of populism on both sides of the aisle. Since they impact a tiny number of the population, supporters champion that the collateral damage is minimal. However, the tactic is a moral transgression and an economic misstep. First, financial confiscation violates citizens’ property rights. Second, it is a nostrum that applies a Band-Aid to a tumor rather than using the necessary tools to eradicate the cancer.
Mark Zuckerberg (Photo by Drew Angerer/Getty Images)
Case in point: Mark Zuckerberg. Following the collapse in Meta’s share price and the tanking of the overall stock market, one of the world’s wealthiest people saw his net worth plummet by approximately $100 billion this year. He is now worth $38.1 billion. Who knows how much more the numbers will fall? However, the main point is what happens when the well is dry. Will the government squeeze every penny from someone who is losing his fortune?
The same could be applied to Big Oil. Sure, Chevron and ExxonMobil are raking in the dough now, posting record profits. But this is temporary. Once the commodities boom subsides, these organizations will not be performing a rendition of “We’re in the Money” from Gold Diggers of 1933. This was evident in the early days of the pandemic when a barrel of Texas Tea crashed below zero. Will they be provided with bailouts should crude prices inevitably collapse again? Of course not – and nor should they!
Ultimately, comparable to power grabs by the state, wealth snatches are marketed as temporary measures during extraordinary times. As legendary economist Milton Friedman famously said, “There’s nothing more permanent than a temporary government program.”
Please, Stop
Eminent economist Thomas Sowell eloquently wrote that the first lesson in economics is scarcity, meaning there is never enough of anything to satisfy everyone who desires it. However, according to Sowell, “The first lesson of politics is to disregard the first lesson of economics.” This is true of public policy instruments, the printing press, and wealth-redistribution schemes. The coronavirus pandemic provided a treasure trove of economic lessons that future generations can and should study. The most important is perhaps – again, to quote Friedman – “governments never learn, only the people do.” It is safe to say many Americans concur that the Leviathan ignited most of today’s debacles, but its only answers are to pour more kerosene on the fire.
