Oil: Windfall profits tax. Percentage based or price cap?

[Imperialism Inc.]

I'm trying to figure out if the windfall profit tax that the press keeps referring to, from Obama, is a price cap or is percentage based. One article said that he proposed taxing anything over $80/barrel but I couldn't figure out if it was an example or a fixed cap. All the serach results are to McCain's response and not what Obama said (go figure!). For what it is worth I think a cap is a pretty bad idea. As production costs go up the price needs to be able to go up or else there is less incentive to produce the same amount. A capped profit percentage on the other hand is more helpful. It encourages oil producers to make more money by producing more not by just raising the prices and at the same time allowing the market to follow any increased production costs over time.

[Warpy]

1. We need to bring back the progressive tax system

Windfall profits were addressed by the progressive nature of the tax. In other words, when a company's profit showed a sudden spike due to any sort of profiteering, accidental or intended, that profit was taxed at a much higher rate than their ordinary profits were.

The same thing happened with individuals. There was a built in disincentive to the type of naked greed we've seen in top corporate management. It didn't do any good to loot one's corporation to the tunes of tens of millions of dollars a year because everything over an ordinarily princely salary was taxed at 90%.

The progressive tax system barely fell on the working class at all until inflation caused bracket creep to occur in a system based on fixed dollar amounts, something easily avoidable by tying it to the median wage.

Until and unless we return to this system of taxation, we won't be able to begin to address the truly staggering economic problems this country will be facing.

[Imperialism Inc.]

2. Yeah. I guess that is basically what I am saying.

If your profits are 10% of your costs right now and you try to increase them to 20% for no good reason then we're going to take most of that extra anyway so don't even try. Going on a profit percentage basis rather than a fixed dollar amount, it seems to me, would encourage more production since that is the only way to make more profit.

[sam sarrha]

3. just take 90% of all speculation profits and put it into a national solar project..

[Initech]

4. We need to make market speculation illegal.

Guarantee that the price of gas would drop at least $2.50 / gal.

[Vincardog]

5. What makes you think the recent price increases have anything to do with increased PRODUCTION costs?

IMO they are all about increased speculation and profit.

[Imperialism Inc.]

6. Well I didn't really say that.

Surely though there can be increases in production costs now or in the future. My only point was that picking fixed caps doesn't work well with that possibility. It would need to be somehow pegged to production costs so if they did rise the market can respond. I don't have a problem with caps in the short run though.