Why do economists frown on a tax on windfall oil profits?

WASHINGTON –
Hitting oil companies with a windfall profits tax seems like a perfect campaign pitch, since it would effectively return part of the industry’s record profits to strapped consumers.

But a lot of Republicans, as well as most economists, have serious questions about whether the tax makes sense. They cite the country’s previous experience with the tax, from 1980 to 1988, and argue that it failed to produce the kind of anticipated government windfall.

This debate is likely to rage through the fall, as Democrats Barack Obama and Hillary Clinton are making the tax a key proposal of their energy plans.

Clinton would use the tax to help pay for summer suspension of the 18.4 cent a gallon federal gasoline tax, while Obama wants to use windfall profit money for consumer tax breaks and subsidies.

Presumptive Republican nominee John McCain has said that he would be “glad to look” at the tax, but many of his GOP colleagues hate the idea.

McClatchy Newspapers