Greg Mankiw has an excellent article on why gas taxes should be higher. I'm inclined to agree with him. In fact the majority of economists support the notion of Pigovian taxes on gasoline. These are taxes that are used to correct some externality generated by consumption. In the case of gasoline, the externalities are pollution, congestion, climate change etc.
Mankiw also explains why cap and trade policies are inferior to a simple carbon tax. The primary reason being that the revenue from the carbon tax can be used to offset the tax burden - for example - it can be used to reduce payroll taxes.
Primary opposition for carbon taxes come from politicians - but as Mankiw points out; just because they oppose a carbon tax - doesn't mean that carbon taxes are a bad idea.
Anyhow, it is an excellent read for both economists and non-economists alike.
Hat tip goes to the Freakonomics blog where I saw this posted.
Showing posts with label windfall tax. Show all posts
Showing posts with label windfall tax. Show all posts
Monday, September 8, 2008
Wednesday, May 28, 2008
Its summer...and oil prices keep on rising.
So it was pointed out to me that I haven't updated the blog of late. This is a major faux pas in blogging apparently. Actually, its summer. As they say in academia - the top 3 things about being a professor are June July and August. In my case, its just July and August as I am teaching a summer MBA course.
I read a piece recently about Exxon and it's strategy for managing it's franchises. Basically, Exxon HQ knows exactly what each one is charging and varies the wholesale cost to them based on what the local market can stand. From the point of the franchisee this isn't that great, as in times of high gas prices you are still only making pennies per gallon. The full article is here.... The basic tone of course is that big bad Exxon is sticking it to all of us. Well guess what... they are. Its called capitalism.
Exxon is acting entirely rationally in a shareholder wealth maximizing manner. We may not like it, but that's the way it is. Get over it, or don't buy Exxon gas - but buy Exxon stock.
But, since we are on the issue of so-called wind fall profits here are a few other firms/industries that need to be examined.
1. Apple computer - why can't I have an iphone for $99? You know they are making a boatload on those puppies. Loads of demand and carefully controlled supply helps maintain a high price and a nice margin. Hmmm, maybe congress should sue them to make more. (see here for a related article)
2. Farmers - food prices are up. Corn prices are at records because of global demand and ethanol production. Those guys are enjoying some great "windfall" profits.
I read a piece recently about Exxon and it's strategy for managing it's franchises. Basically, Exxon HQ knows exactly what each one is charging and varies the wholesale cost to them based on what the local market can stand. From the point of the franchisee this isn't that great, as in times of high gas prices you are still only making pennies per gallon. The full article is here.... The basic tone of course is that big bad Exxon is sticking it to all of us. Well guess what... they are. Its called capitalism.
Exxon is acting entirely rationally in a shareholder wealth maximizing manner. We may not like it, but that's the way it is. Get over it, or don't buy Exxon gas - but buy Exxon stock.
But, since we are on the issue of so-called wind fall profits here are a few other firms/industries that need to be examined.
1. Apple computer - why can't I have an iphone for $99? You know they are making a boatload on those puppies. Loads of demand and carefully controlled supply helps maintain a high price and a nice margin. Hmmm, maybe congress should sue them to make more. (see here for a related article)
2. Farmers - food prices are up. Corn prices are at records because of global demand and ethanol production. Those guys are enjoying some great "windfall" profits.
Thursday, May 1, 2008
Diane Rehm show on gas prices
I was riding in my car today and I was listening to Diane Rehm on NPR. Her show was about gas tax holidays as are being proposed by McCain and Clinton.
You can hear it here.
There was a fair amount of discussion from the panel about how a gas tax holiday was a bad idea - it encourages consumption, it reduces tax revenue for road building (and thus has an offsetting fiscal effect) etc.
Then Diane asked about the windfall tax that has been proposed. At this point Mark Cooper (director of research for the Consumer Federation of America) said something truly amazing. To paraphrase: he said that the oil companies don't really do anything with the excess profits - they just buy back stock or pay dividends. Then he said, and I quote "If you look at it from an economic point of view, taxing it away is not inefficient because they are not doing anything efficient with it"
What???? So the government should be able to step in and tax excess profits? This has to be one of the daftest things I have heard in a while. Those profits which are paid out as dividends are being used efficiently. Firms that do not have good investment projects are to be commended for paying out surplus cash to shareholders. Shareholders can then invest in other firms which need cash and have more productive growth opportunities.
It is one thing to make a policy decision to legislate a wealth transfer from one sector of the economy to another, but it makes no sense to argue that the government should tax more because it can put the money to a more efficient use.
You can hear it here.
There was a fair amount of discussion from the panel about how a gas tax holiday was a bad idea - it encourages consumption, it reduces tax revenue for road building (and thus has an offsetting fiscal effect) etc.
Then Diane asked about the windfall tax that has been proposed. At this point Mark Cooper (director of research for the Consumer Federation of America) said something truly amazing. To paraphrase: he said that the oil companies don't really do anything with the excess profits - they just buy back stock or pay dividends. Then he said, and I quote "If you look at it from an economic point of view, taxing it away is not inefficient because they are not doing anything efficient with it"
What???? So the government should be able to step in and tax excess profits? This has to be one of the daftest things I have heard in a while. Those profits which are paid out as dividends are being used efficiently. Firms that do not have good investment projects are to be commended for paying out surplus cash to shareholders. Shareholders can then invest in other firms which need cash and have more productive growth opportunities.
It is one thing to make a policy decision to legislate a wealth transfer from one sector of the economy to another, but it makes no sense to argue that the government should tax more because it can put the money to a more efficient use.
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