A Windfall Tax Is Bad Economics

This week, Exxon Mobil(XOM Quote) said it earned nearly $10 billion in the third quarter. Other major integrated companies followed suit, with Royal Dutch Shell(RDS.A Quote) posting results over $9 billion, and other majors such as BP(BP Quote), Chevron(CVX Quote) and ConocoPhillips(COP Quote) weren't far behind.

That is a lot (a whole lot) of money for just 90 days of work. But that doesn't mean that our faithful governmental leaders should lay claim to a larger portion of the cash in the form of a windfall profits tax. In short, such a move would be detrimental to global oil and gas supply, and it amounts to nothing more than a tax on success.

Economics Lesson

Higher oil and natural gas prices are a result of only one thing: increasing demand in an era of tightening supply. An improving domestic economy combined with robust growth from developing countries such as China and India pushed demand for hydrocarbons higher. At the same time, it has become more difficult to find new sources of oil to replace those fields that are maturing and showing signs of production decline. ...