December 19, 2006 01:44 PM | | Bookmark and Share

Over the last couple of years, Americans have faced rising gasoline prices — affecting their everyday lives as well as the economy in which they try to make a living — even as oil and gas companies enjoy record profits. Some suspect that the energy industry is becoming so consolidated that it does not face the sort of competition that would normally keep oil prices down to reasonable levels. Some progressives have argued that this is reason to impose a new tax on large oil and gas companies, perhaps even a new version of the windfall profits tax that was in place in the 1980s.

A better policy, at least in the short-term, would be to simply close the absurd loopholes that currently allow Big Oil to avoid paying its fair share. If the public debate revolves around whether or not Big Oil needs to be subsidized through the tax code at a time when oil prices are at an all-time high, it will be much more difficult for the energy companies to win the debate. As a practical policy matter, it makes sense for Congress to get energy companies to simply pay the taxes they would owe without special loopholes, before considering adding a new tax on their excess profits.

The Bush administration, which claims to support free-market policies, may find it difficult to oppose a proposal to stop using the tax code to subsidize large energy companies. This is particularly true of the latest round of energy tax breaks, which were added in the Energy Policy Act of 2005. These were so embarrassing that even President Bush (hardly an enemy of Big Oil) opposed them and only signed them into law when it was clear that they were necessary to get a bill passed through Congress.

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