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Free Market Project

2/28/2006 11:22:29 PM

Updated 02/24/06

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Punishing Profits
‘Windfall’ taxes would be a tax on free enterprise.

By Herman Cain
National Chairman, Free Market Project
Nov. 2, 2005

Send this page to a friend! (click here)     One of the great things about America is that a small businessman may wake up one day and find himself a multimillionaire, if he takes some risks and works hard. It’s that dream that starts businesses. It’s that dream that keeps people going when times get tough. And it’s that dream that brings millions of people to this country. Every day, hard-working Americans sweat to create more opportunities for themselves and their children, just like my father did.

     But what makes these folks work so hard? Sure, many of them love what they do. But even so, if it didn’t put dinner on the table, they’d eventually have to find something else that did. Getting paid is our incentive to work.

     Companies have that incentive, too, and the bigger the company, the larger the scale of profits it takes to make the business worthwhile.

     Since oil companies reported third-quarter profits, the media have been attacking, manufacturing an outcry from consumers who say they are being “cheated.” Journalist after journalist has asked, “Are the oil companies making too much money?”

     The media should ask Bill Gates if there is such a thing as “too much money.” He’s the richest man in America, and he gives a lot of it away to causes of his choice. The beauty of America’s free market is something Forbes magazine includes in Gates’ profile, which lists his net worth at $51 billion: “self-made.” That means it’s possible for others to succeed as well.

     Gates made a fortune because people decided they wanted computers and software. Americans like to buy what we want. We like cheeseburgers and sodas, too. But if being profitable is criminal, then we’d better call for price controls on Coca-Cola and Big Macs. And if you really want to get serious, you’d better hide your cash under your mattress – rather than helping those high-earning banks to “profiteer” large amounts off your accounts.

     As ridiculous as this discussion may seem, this is exactly where politicians on both sides of the aisle have taken the issue of gasoline prices. After prices spiked from hurricane-induced supply interruptions, legislators started calling for Congress to consider a “windfall profits tax” to punish oil companies for making more money than usual. Frankly, I can’t imagine this in many other industries. If a movie was a box office hit, would Congress steal a chunk of its ticket sales because it made “too much”? The problem with this idea is clear: in order to tax profits, someone has to decide how much is too much, and that someone is the government.

     Plenty of economists have spoken out against a windfall profits tax on oil companies. In fact, more than 250 of them wrote an open letter to Congress pleading for sanity to prevail on the issue. They pointed out what happened the last time the government imposed such a tax on oil in the 1980s. The results weren’t anything today’s politicians want to see: domestic oil production fell; oil imports rose; and the tax didn’t even provide much of a government windfall. Looking at the facts, there is absolutely no reason to consider repeating such a gross policy blunder.

     A windfall profits tax would do the opposite of what we need to do for our energy industry. The only way to provide Americans gasoline at low prices is to allow oil companies to make the profits they need to expand production and continue exploring for more oil.

     The oil companies aren’t pocketing all those profits – they’re distributing them among their shareholders and investing in the future. As long as companies are allowed to prosper, we will benefit by having access to products we want. Our leaders need to support American businesses and the American consumer. If we start to limit prosperity for one, we will limit prosperity for all.

     Herman Cain is the former president and CEO of Godfather’s Pizza, Inc. and currently is CEO and president of T.H.E. New Voice, Inc., a business and leadership consulting company. He is the National Chairman of the Media Research Center’s Free Market Project.


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