It’s Not the Oil Companies

Economics professor Barbara Fischer brings a refreshing dose of sanity to the hysteria over the role of the oil companies in the current rise in gasoline prices.

Punishing oil companies is perverse logic. Slapping on a windfall profits tax will indeed cause gas consumption to fall (as the tax is passed on to the consumer); however, beware of the unintended side effects. Lower oil demand will lead to lower oil prices, which in turn will lead to higher consumption, thereby reducing the incentive to find alternative energy sources.

The ultimate irony is that while oil companies earn about 8 to 10 cents per dollar of sales, the state of Wisconsin earns 32.9 cents for every gallon of gas sold and the federal government takes another 18 cents. So who is gouging whom? Thus, state and federal government receive more than 50 cents a gallon for doing nothing.

At least oil companies are producing the gas, creating jobs, paying taxes and searching for alternative sources of fuel. Oil companies spend billions of dollars on alternative fuel sources. So taxing their profits simply reduces their incentive to continue doing so.

We have placed oil companies between a rock and a hard place. We would not find ourselves in this pickle if we allowed them to drill in the Arctic National Wildlife Refuge and/or made it easier for them to build more refineries. We demand lower gas prices, yet we stand in the way of any potential solution. Then we turn around and curse the oil companies, accusing them of collusion.

Politicians in Congress are sharpening their ax in preparation for killing the goose that lays the golden eggs. Someday, when we’re looking at $10 a gallon gas, the American public will finally wake up and realize they were angry at the wrong people.

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