windfall profit tax effects

[World Citizen]

I was talking to my brother-in-law who claims that Obama's plan to use a windfall profit tax on the oil industry for the emergency consumer rebate would just cause the oil industry to turn around and pass that along to consumes as a cost. I admitted that I knew very little about the history, legislation or economics on the subject. Is there anyone that can help me out?

[cbc5g]

1. Sounds like it would be an illegal price gouging which a DEM admin would actually prosecute

Secondly...McCain proposes a 4 billion dollar tax cut for exxon mobile when we are 8 trillion in debt

[napi21]

2. It depends on how the law is written. I'm going to assume that

the term "windfall profit" would mean any net profit over a certain %. ALL of those companies MUST undergo an annual audit by a public accounting firm of how they recorded things and what they took as expenses, etc. They are also subject to IRS audits, unannounced and the timing determined by the IRS. There are akready thousands of tax laws they have to comply with, and if this "windfall profit tax law" is written properly, it will eliminate places where they could hide profits they didn't want to declare.

[World Citizen]

3. bear with me a minute

I appreciated your reply. Is there anything to stop the oil companies from simply raising the price at the pump, justified by the cost of the new tax.

[napi21]

5. None other than they'd just owe more windfall profit tax. Somehow that doesn't make

much sense to do. It doesn't help them, it hurts their image, and harms the customer. My only concern would be something like increasing the officers salaries and bonusus. The only ones who can control that are the Board of Dir's and the stockholders. You can't depend on the stockholders because most of their stock is held by "institutional Investors" (Mutual funds) and the people who control their investments wouldn't want to hurt their "buddies". After all, they're ALL getting obscene bonusus and salaries! I don't think there's any way to control those salaries & bonusus via any law, and you know what the reaction would be to "price capping"!

The ONLY other solution I can think of is to Nationalize the oil companies and make them a public utility, and I really don't see that happening.

[seasat]

4. Plus it's not 100% in passing along taxes

That argument has been put through for a while about taxing corporations, the wealthy, and other interests. Subsidies to these same interests don't result in lower prices, they simply pocket the difference. Corporate taxes are lower under Shrub inc and we haven't seen a dime passed onto us. Likewise, they can't pass on taxes like this as easily because it will result in a lower demand for the product. We're already seeing a drop in miles driven by US consumers along with an increase in demand for fuel efficient vehicles. These corporations have some flexibility in their costs and will adjust to compensate for the additional tax.