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Obama’s Brilliant Stimulus Plan: An Energy Rebate

Posted By Nicolas Loris On August 1, 2008 @ 2:55 pm In Energy | Comments Disabled

Killing two birds with one stone; Barack Obama has it all figured out. To compensate for the high costs of gas and energy prices and revamp the struggling economy, presidential nominee Barack Obama conjured up a plan to give $500 to individuals and $1000 to families as soon as this fall. Speaking in Florida he said [1],

“This rebate will be enough to offset the increased cost of gas for a working family over the next four months. Or, if you live in a state where it gets very cold in the winter, it will be enough to cover the entire increase in your heating bills. Or you could use the rebate for any of your other bills or even to pay down debt.”

Well, that sounds great. I mean, who wouldn’t be on board with a $1000 check from the government? But the money has to come from somewhere. George Mason economist Russ Roberts explains this logically [2]:

“If you raise taxes to fund the plan, the people who are taxed are poorer and they’ll spend less. If you borrow money to fund the plan, the people who buy the government bonds have less money to spend and that offsets the stimulus. It’s like taking a bucket of water from the deep end of a pool and dumping it into the shallow end. Funny thing—the water in the shallow end doesn’t get any deeper. Whoever gets stimulated is likely to be offset by someone who gets unstimulated.”

So who’s getting unstimulated under Senator Obama’s plan? Don’t worry, it’s not the taxpayer; it’s the big oil companies. Obama plans to enact a windfall profits tax on big oil to pay for this plan. At $500 a piece for each of the 131 million taxpayers (as of 2004 [3]), that’s a $65.5 billion windfall profits tax.

It’s time to poke some holes in this plan. Generally, when big companies are taxed like this, they will simply pass the costs to their consumers. In essence, it’s not the big oil that will cut the stimulus checks but the energy users. Yet the worse part about windfall profits taxes is that they raise energy prices and can lead to supply restrictions [4]. For example, Senator Byron Dorgan (D–N.D.) introduced the Windfall Profits Rebate Act of 2005 (S. 1631) that would have imposed a 50 percent tax on the price of oil above $40 per barrel. Given that the price of a barrel of oil is about $125 today, Senator Dorgan’s bill would have increased the price to $187.50.

Furthermore, windfall profit taxes have an abysmal track record. It discouraged expansion of domestic energy supplies and led to increased oil imports. According to a 1990 Congressional Research Service study, the WPT in place from 1980 to 1988 “reduced domestic oil production from between 3 and 6 percent, and increased oil imports from between 8 and 16 percent.”

My questions for Senator Obama are: what does your plan do to lower to gas and energy prices? What happens when the stimulus check is spent? Why would enact a plan to restrict supply of energy rather than expand it? Why not end some of the government policies, like restrictions on domestic oil drilling, that helped make gasoline so expensive in the first place?


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2008/08/01/obama%e2%80%99s-brilliant-stimulus-plan-an-energy-rebate/

URLs in this post:

[1] Speaking in Florida he said: http://www.politico.com/news/stories/0808/12237.html

[2] Russ Roberts explains this logically: http://www.npr.org/templates/story/story.php?storyId=18159629

[3] as of 2004: http://usgovinfo.about.com/cs/consumer/a/irsweb04.htm

[4] they raise energy prices and can lead to supply restrictions: http://www.heritage.org/Research/EnergyandEnvironment/wm2004.cfm

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