What are "Windfall Profits?"

[F2XL]

I joined this site specifically to get an answer for this. I am a former Neocon who finally saw the light an turned Libertarian.

Here's a quick blog post:

http://social.bureaucrash.com/profiles/blog/show?id=2310103%3ABlogPost%3A10459

I apologize if you must join that site to become a member, if that's the case either join or read this article instead:

http://online.wsj.com/article/SB121780636275808495.html?mod=opinion_main_review_and_outlooks

Or see this link:

http://www.opposingviews.com/comments/windfall-profits

Can someone explain to me the rational behind that http://www.barackobama.com/issues/economy/#jumpstart">"windfall profits" tax Obama supports?

Is there a level of success that happens to be immoral for a company to make? Are oil companies really making a "windfall" to begin with? I'm eager to see the justification behind this tax (if there is one).

[ThomWV]

1. Short answer

Immagine that back in 1990 you bought into a partnership that owned a dozen Texas oil wells; let's say you put up $10,000. Let's say that each well was reliably pumping 10 barrles a day; had been doing so for years, and continued to do so until today. When you bought that share in the wells you were getting a return on your investment of 10%, or $1,000 per year. Then the price of oil went from $15 to $150 and now you are actually getting an annual return on your initial investment that is equal to it because the price of oil has gone up by 10X. That is excess profit.

[F2XL]

2. Interesting...

I'm kind of lost in what you're saying, but when did the price of oil go up 10x? Is making 10 cents for every dollar spent (Exxon) an immoral amount of profit?

[pitohui]

7. after katrina exxon mobile had the largest profits of any quarter of any business in human history

at a time when we were displaced from our homes and had no choice but to travel and purchase their shitty product, they jacked us

that's windfall profit, my friend, and it should be criminal not merely highly taxed, all profits should be COMPLETELY returned to the taxpayer and the folks involved in the theft should be in federal prison w.out chance of parole

the man who charged $129 for a motel room that was $69 the day before katrina was charged w. price gouging by the state atty-general

the board of directors and ceo of exxon mobil were allowed to keep on trucking

they should all be in prison, as should all of those who spew their lies and propaganda

if you recognize yourself in the mirror, then think about the ugliness you promote, and why you want to be the kind of person who steals from victims of a natural disaster

because that's what you're supporting

[F2XL]

8. Let me ask again...

Are you all saying that making 10 cents for every dollar spent is immoral? I would sure like to know.

[pitohui]

9. yes it is immoral to price gouge in time of national crisis

period end of sentence

i realize that complex ideas are too difficult for you, but come on repeating yourself like a parrot isn't going to fool or impress anyone here

"enjoy your stay"

[F2XL]

10. So 10% is gouging...

Got it...

[WindRiverMan]

12. In 2000, oil in Alaska sold for $28 per barrel, in 2008 it sold for almost $200

Got it?

[mediaman007]

3. Might be a cost of doing business...

1. First, how can one person declare a windfall profits tax? An individual might declare a position on an issue, but Congress has to write and pass any laws for a President to sign.

2. I would imagine that its just as right for a government to declare an arbitrary "windfall profits" tax as it is for the oil companies to ask the government for a tax break.

3. Have you ever noticed how the prices at neighboring gas stations are the same? Is that competition?

[tulsakatz]

4. are you saying you don't think oil companies are making excessive profits?

ever since hurricane Katrina, we've seen the price of gasoline rise to a level we've never seen here before! And also since hurricane Katrina, oil companies have stated (each year) that they've made record profits. Did you get that? Each year they've made even more than they did the year before!!

And at a time when consumers are paying more for their product than they ever had before too! And yet the oil companies will tell you the two situations are not related but at the very least, it looks suspicious to many of us....

[pitohui]

5. he's saying he likes his pizza w. extra cheese EOM

,

[F2XL]

6. Yes, I am

Now are you saying that making 10 cents for every dollar spent is somehow immoral?

[shraby]

13. If their costs in producing the product for

use hasn't gone up in relationship to what they are charging for their product, then the excess percentage is excess profits. When their ratio is what it is now, that's theft. No two ways about it.

[tulsakatz]

16. no, I'm not saying that.........

and I don't even know if I would go so far as to say it's immoral.....I don't like making moral judgements about the actions of others.

Although I do think it's wrong for big oil companies to make record profits (every single year) while they are also charging us more for their product than they ever have before!!

In my mind, there is a direct relation to our paying more for their product at a time when they're making more than they have before!

If you don't have a problem with that, that's fine. However, I do have a big problem with that!

[Believing Is Art]

11. Answer to the morality question

"Is there a level of success that happens to be immoral for a company to make?"

As a libertarian, I'm sure your answer is no. I'm not passing judgment; I disagree with the libertarian position but I understand it.

The record profits made by the oil companies during a time when the price of gas has ballooned suggests that yes, they are making a windfall on a commodity during a hard time for the lower and middle classes. This is morally offensive to some and not others, but the more interesting question is would this happen in a truly free market?

I believe the answer to that is no. Price gouging would be the kiss of death for a company in a free market. But deregulation and a free market are not the same thing. Subsidies, tax cuts and shelters and loopholes, lobbyists, etc., have all allowed for a few to amass a more significant percentage of the wealth than would be possible in a free market, and thus no one has the necessary means to compete with these practices.

While I believe that the concept of a free market is good on paper, I think that that concept and the existence of any government are mutually exclusive entities. When someone acquires enough wealth, the first thing to be purchased is influence in the government to ensure they keep that wealth no matter what risks they take. This is what has happened with deregulation.

I know this isn't a direct answer, but it's something I've been thinking a lot about lately.

[Believing Is Art]

14. Sorry, bit more to add

I think that the role of government in a capitalist economy is to enforce regulations that result in the mimicry of the behavior of an ideally free market, while also ensuring economic stability. This would never be perfect of course, but it could get a lot closer than deregulation.

Companies should be allowed to make independent decisions and take risks, and they should be rewarded if they are intelligent choices. And they should be punished if their practices are reckless. No private company should be allowed to grow to the point that they are "too big to fail." And yet we are seeing executives make stupid choices and not facing the consequences. We are seeing taxpayer bailouts of companies, all resulting from deregulation. Government involvement in the economy doesn't have to mean socialism; it should encourage smart business practices and protect the taxpayers from paying the price of poor decisions.

[Jim__]

15. Do you know what a windfall is?

From Investors words:

Money received which was not expected and not a direct result of something the recipient did.

So, if a few people realize a large windfall profit, so large that it begins to hurt the overall economy, then, yes, the government should do something to redistribute that money to protect society. It's very hard to argue that this has any bad effects since, by definition, the windfall profit is not due to anything the recipients did.