Taxes on windfall profits

Why do we need them, since there are already corporate income taxes which (theoretically) are taxes on the profits made by a business? The idea that we should tax "excessively" large profits at a higher rate than others implies that there is such a thing as an excessively large profit.

It assumes one of two things:

1. Either that a corporation lucked into an exceptionally high earnings year without significant planning, preparation, or risk, and that's a dubious notion in itself,


2. Or that while the corporation may have laid the groundwork for its success, it isn't entitled to benefit from it.

It further assumes that larger profit values should be taxed progressively: the more a company makes, the higher the tax rate should be. It suggests that the purpose of a business enterprise is to generate revenue -- not for its owners or shareholders -- but for the government.

It changes the after-tax income from the reward for a wise investment of time and resources into merely the charitable indulgence of a beneficent government. In effect, it punishes successful businesses for an effective and efficient distribution of resources, which is a goal which should be in everyone's best interest. Such punitive taxes amount to a financial disincentive to invest in market segments where the demand is highest, potentially diminishing the supply and raising prices on the product -- oil anyone?

One more thing before I wrap up. I'm not suggesting here that taxes are bad, per se. But I do think there's a moral implication to tax policy. This nation has long recognized a strong right to property, and the idea that a corporation is in business to generate revenue for the nation (rather than for shareholders) represents a sharp retreat from a dearly held American value.

For more on the topic, check out Stephen Green's Monday post on Vodkapundit. (I know, I'm late in getting to this.)

Tags: economics, taxes