During the 2020 presidential campaign, Massachusetts Sen. Elizabeth Warren pledged that she had all the answers. Or, as Warren put it, she “has a plan for that.”
Yet despite being misleadingly spun as a policy wonk by many in the media, the Democrat’s campaign plans were never actually very well thought out. Apparently, things haven’t changed. This time, Warren’s policy foolishness is emerging in response to record-high gas prices across the country. During a recent MSNBC interview, Warren (yet again) attempted to blame the high gas prices on corporate greed and “profiteering.”
This silly suggestion requires one to believe that corporations were miraculously feeling generous in 2020, when gas prices fell below $2 per gallon. Yes, businesses seek profits, but supply and demand determine prices, not the whims of corporate executives.
But Warren did more than push her “corporate greed” narrative in this latest interview. She went on to suggest that Democrats are working on a tax hike targeting gas companies they perceive to be raking in unfair levels of profit. “I’m co-sponsoring a bill on windfall profits tax,” Warren said. “Look, we get it — supply and demand, prices go up. But profit margins should not go up. That’s just oil companies gouging.”
This is a hilariously horrible idea.
Gas prices are already outrageously high, averaging roughly $4.33 per gallon according to AAA. Imposing new taxes on oil companies increases their costs — and as ECON 101 teaches us, that’s a textbook recipe for a decrease in supply. When supply decreases, prices go up even further!
Warren’s plan would probably lead to higher prices at the pump in the short run. (Even in the best-case scenario, its effect on gas prices would be neutral.) And the entire premise behind the plan is flawed. High profits are actually a good thing, not something to discourage. In the long run, they lead more companies to increase production or enter the market and thus increase supply, lowering prices over time. Attempting to eliminate profits punitively through misguided legislative anger disrupts the free market forces that lead to abundance and wealth creation.
A similar scheme failed in the 1980s, when President Jimmy Carter imposed a tax on windfall profits on oil companies. It failed miserably. According to the nonpartisan Congressional Research Service, it led to reduced domestic oil production and increased reliance on foreign oil. That’s pretty much the opposite of what we’re looking to achieve right now!
As Americans for Tax Reform notes, Democrats themselves ended up repealing this misguided tax in 1988.
Despite her supposed wonk status, Warren is ignoring history and economics alike to push this objectively idiotic plan. Far from lowering gas prices, the senator’s foolish idea would only make things worse.
Warren might “have a plan for that,” but once again, her plan sucks.