RE:Czech's proposing 60% tax on excess oil profitsThe Czech proposal also opens up a new avenue for taxation. The proposal also calls for taxation of excess profits of large banks.
The key questions here are -
1....does this make any sense?
The answer depends on where you sit. From a political point of view such a proposal makes a lot of sense..... extra revenue to reduce budgetary deficits or more likely, money for handouts to get re-elected. It is also popular to tax the rich.
From a business point of view the proposal is bad.
2....what are the ramifications?
The excess profits going to the oil companies is caused by a couple of key factors. One is a tight oil demand/supply situation and two oligopoly pricing.
The oligopoly pricing is OPEC and an excess profits tax does nothing to address this situation.
If anything, an excess profits tax reduces the cash flow the oil industry has to increase the supply of oil and only serves to increase the price of oil. Higher oil prices mean higher inflation which in turn means higher interest rates.
Higher interest rates mean a transfer of wealth from the poor to the rich and so while seemingly great for politicians because people are duped into believing that they are better off, the actual impact is that the guy on the street will be worse off and politician idiots who dreamt up the scheme stay in power. So I guess they aren't idiots after all.
To me this is the classic case of political expediency vs common sense. And as I mentioned in previous posts there is nothing common in sense these days.