Quasi-Defending the Windfall Profits Tax

[digg-reddit-me]A friend of mine wrote to me yesterday regarding his concern about the windfall profits tax that Obama is current proposing for oil companies.  He explained that that the very idea of this tax attacks the very essence of capitalism.

And while I see his point, and am wary of political actions that involves scapegoating any isolated source, I don’t share his feelings on the subject.  The reason is simply this: the oil companies have been bad actors for some time – as he acknowledges; they have taken steps to ensure that Americans never developed alternative fuels, and have decided more recently to pocket much of the profit instead of investing it in developing alternate fuels.  Rather than leading the way in helping to free America from it’s reliance on oil – which not only is driving global climate change, causing pollution, propping up anti-American and tyrannical forces around the world from Russia to the Arab world, and creating the most massive transfer of wealth in the history of humankind – Big Oil has worked to ensure the system stays as it is.

Throughout American history, presidents have attacked and modified the basic foundations of capitalism when they felt it was necessary to protect essential American institutions and values.  Abraham Lincoln liberated the property of millions of Southern plantation owners; Woodrow Wilson, Franklin Delano Roosevelt, and Harry Truman created systems of wage and price controls; private property was regularly and promiscuously confiscated by the government to make way for railroads and highways and now anything that will generate higher tax revenues; tariffs and subsidies have always distorted capitalism – as did regulation, once it became commonplace.

What we see in the history of America and capitalism is a constant balancing act – between free market forces and the forces that wish to preserve an ordered society.  Capitalism – by it’s nature – is exploitative.  Unregulated capitalism is what drove America’s growth through the 1870s, 1880s, and 1890s – as workers were abused, killed, and entirely exploited – living in shanty-towns like slaves – as big corporations bought Congressmen by the dozen and forced through laws benefiting them – all of this for the benefit of a wealthy few.  This was capitalism.  And then in the 1950s, with the top marginal tax rate set over 90% and the gap between the rich and the poor narrower than ever, with unions representing 36% of workers, that too was capitalism.  Both the bustling city of Alexander Hamilton and the idyllic country farm of Thomas Jefferson were capitalistic.  For all the talk of “creeping socialism” over the past half-century, the only time America came close was the direct result of the inaction of Herbert Hoover and the overcompensation by Franklin Delano Roosevelt.  And at no point was America ever purely capitalistic.

Civil liberties, once given away, are extremely difficult to get back; executive power, once taken, is rarely relinquished; but American-style capitalism has proved to be a canny system, surviving under even the most stringent regulations and fighting it’s way back until, as before, it’s excesses trigger a response.

Under this understanding, I can accept the idea of a windfall profits tax.

The government has always been intruded in the economy.  During the late 1800s, the government fought for and protected the interests of the rich against the poor and anyone else (although this period comes closest to demonstrating what a laissez-faire system would produce); during the 1950s and 1960s, the government protected the middle class; by the late 1960s and 1970s, the government had shifted it’s focus to the poor.  Today, the government has once again shifted to the protection of the rich – while maintaining some of the programs that protected the middle class and the poor.  The Financial Times of London observed just a few weeks ago that while the government let homeowners in default fail by the thousands, they could not let any big corporations fail and that by privatizing profits and socializing losses, the American government is practicing socialism for the rich.  Is a windfall profits tax any greater of an intrusion into the market, an undermining of capitalism, than the attitude that if you become big enough, the government will not let you fail – and while you can keep your profits, your losses will be socialized?

What Obama is specifically proposing is to give a $1,000 emergency energy rebate to consumers – a tax cut for individuals – paid for by this windfall profits tax.  With many of our national economic woes directly tied to the oil industry which is making more profit than at any time in history – this seems just in this instance, even if it is flawed in theory.

I’m not crazy about the idea – but I do see it as an appropriate punishment for big oil – who, though their poor stewardship of a national security asset, have endangered our way of life.  Thus far, for their bad behavior, they have been rewarded with the greatest profits of any corporation in history.

While I see that this windfall profits tax could set a bad precedent – I do think it can be justified in this instance.

The real conversation here – and the real reason for this proposal by Obama – is not about economic policy, but about politics.  John McCain recently reversed his position on offshore drilling to take the popular position that we should open up those few areas designated to be preserved for drilling.  This will not affect oil prices for at least seven years – and distracts us from the real problem at hand – a disastrous national addiction to oil.  But the politics was too good for McCain to pass it up – and now he is using this cudgel of offshore drilling to club Obama.

Obama’s response to this is his proposal for a windfall profits tax.

As Kevin Drum sees the politics of this:

As a one-off, this probably doesn’t have much impact, but if it’s a harbinger of things to come — and I assume it is — it holds huge promise. It’s just like McCain’s legendary series of flip-flops: on an individual basis they don’t matter too much, but when you put them together into a coherent narrative they make a powerful story. After all, pretty much every McCain flip flop has a single source — changing his position to be more acceptable to the anti-tax, big business, Christian conservative base of the Republican Party

I don’t know if any of this will make my friend feel any better.  But it is a position I can accept.  As a policy, I don’t think it’s the best idea – and I don’t think it helps solve any problems.  But as politics – which is the only way to understand it – it is pitch-perfect for the times.