Free Republic

It has become popular for politicians to advocate going after oil companies for their seemingly outsized profits. Otherwise rational people turn red-faced with anger when they think about the tens of billions of dollars flowing into the coffers of “big oil.” The most often talked about “solution” to—really punishment of—big oil’s big profits is the imposition of a “windfall profits” tax. Such a tax would set an arbitrary limit to what oil companies can make and then slap an extra tax on profits if they exceed that limit. Now set aside the question of whether it makes sense for politicians...

John McCain and nearly every economist agrees that a windfall-profits tax on the oil industry would drive away investment, increase prices to consumers, and make Americans more dependent on foreign oil. If anyone wants to see that in microcosm, they only need look at Alaska. With the backing of Governor Sarah Palin, the state managed to drive away investment in development by hiking taxes on oil companies drilling on state lands: Over the opposition of oil companies, Republican Gov. Sarah Palin and Alaska’s Legislature last year approved a major increase in taxes on the oil industry — a step that...