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A “Reasonable Profits Board”? If Only It Were From the Onion…

A Congressional Bill proposing a “Reasonable Profits Board” so that profits on the sale of oil and gas in excess of what is “reasonable” can be subjected to a windfall tax.  A brief description:

According to the bill, a windfall tax of 50 percent would be applied when the sale of oil or gas leads to a profit of between 100 percent and 102 percent of a reasonable profit. The windfall tax would jump to 75 percent when the profit is between 102 and 105 percent of a reasonable profit, and above that, the windfall tax would be 100 percent. The bill also specifies that the oil-and-gas companies, as the seller, would have to pay this tax.

We have a long archives of posts here at TOTM on a variety of forms of price gouging legislation in oil and gas.   Most recently, in discussing a White House Task Force aimed to detect price gouging and usurping jurisdiction from the Federal Trade Commission, I wrote:

One need only read the FTC’s 222 page report on gasoline prices post-Katrina and Rita to appreciate the Commission’s expertise in this area.  But perhaps most importantly, and undoubtedly related to the appointment of a working group outside the Commission, is that the Commission understands the relevant economics.  Indeed, as I noted just recently, then Bureau of Economics Director Michael Salinger gets it right when he observed  “as unpleasant as high-priced gasoline is, running out will be even worse.”  Further, it was the Commission Report that found not only scant evidence of what might be described as “gouging” — but did find examples of gas stations that shut down rather than risk a suit under a state price gouging law.  “Price Gouging Helps Consumers” doesn’t make for much of an election slogan, so perhaps this is all to be expected.  But nobody should be fooled into believing that enforcement of existing state price gouging laws, or a new federal task force devoted investigate “price gouging,” are going to make consumers better off.

The criticisms against price gouging laws become even stronger against a “Reasonable Profits Board,” which is even more blatantly political, even more likely to harm consumers, and even more likely to waste social resources than enforcement of state price gouging laws.


Filed under: economics, federal trade commission