Punishing Profits
Published: 11/1/2005 2:00 PM ET
One of the great things about America is that a small businessman
may wake up one day and find himself a multimillionaire, if he takes
some risks and works hard. Its that dream that starts businesses.
Its that dream that keeps people going when times get tough. And
its that dream that brings millions of people to this country.
Every day, hard-working Americans sweat to create more opportunities
for themselves and their children, just like my father did.
But what makes these folks work so hard? Sure, many of them love what they do. But even so, if it didnt put dinner on the table, theyd eventually have to find something else that did. Getting paid is our incentive to work.
Companies have that incentive, too, and the bigger the company, the larger the scale of profits it takes to make the business worthwhile.
Since oil companies reported third-quarter profits, the media have been attacking, manufacturing an outcry from consumers who say they are being cheated. Journalist after journalist has asked, Are the oil companies making too much money?
The media should ask Bill Gates if there is such a thing as too much money. Hes the richest man in America, and he gives a lot of it away to causes of his choice. The beauty of Americas free market is something Forbes magazine includes in Gates profile, which lists his net worth at $51 billion: self-made. That means its possible for others to succeed as well.
Gates made a fortune because people decided they wanted computers and software. Americans like to buy what we want. We like cheeseburgers and sodas, too. But if being profitable is criminal, then wed better call for price controls on Coca-Cola and Big Macs. And if you really want to get serious, youd better hide your cash under your mattress rather than helping those high-earning banks to profiteer large amounts off your accounts.
As ridiculous as this discussion may seem, this is exactly where politicians on both sides of the aisle have taken the issue of gasoline prices. After prices spiked from hurricane-induced supply interruptions, legislators started calling for Congress to consider a windfall profits tax to punish oil companies for making more money than usual. Frankly, I cant imagine this in many other industries. If a movie was a box office hit, would Congress steal a chunk of its ticket sales because it made too much? The problem with this idea is clear: in order to tax profits, someone has to decide how much is too much, and that someone is the government.
Plenty of economists have spoken out against a windfall profits tax on oil companies. In fact, more than 250 of them wrote an open letter to Congress pleading for sanity to prevail on the issue. They pointed out what happened the last time the government imposed such a tax on oil in the 1980s. The results werent anything todays politicians want to see: domestic oil production fell; oil imports rose; and the tax didnt even provide much of a government windfall. Looking at the facts, there is absolutely no reason to consider repeating such a gross policy blunder.
A windfall profits tax would do the opposite of what we need to do for our energy industry. The only way to provide Americans gasoline at low prices is to allow oil companies to make the profits they need to expand production and continue exploring for more oil.
The oil companies arent pocketing all those profits theyre distributing them among their shareholders and investing in the future. As long as companies are allowed to prosper, we will benefit by having access to products we want. Our leaders need to support American businesses and the American consumer. If we start to limit prosperity for one, we will limit prosperity for all.
Herman Cain is the former president and CEO of Godfathers Pizza, Inc. and currently is CEO and president of T.H.E. New Voice, Inc., a business and leadership consulting company. He is the National Chairman of the Media Research Centers Business & Media Institute.
But what makes these folks work so hard? Sure, many of them love what they do. But even so, if it didnt put dinner on the table, theyd eventually have to find something else that did. Getting paid is our incentive to work.
Companies have that incentive, too, and the bigger the company, the larger the scale of profits it takes to make the business worthwhile.
Since oil companies reported third-quarter profits, the media have been attacking, manufacturing an outcry from consumers who say they are being cheated. Journalist after journalist has asked, Are the oil companies making too much money?
The media should ask Bill Gates if there is such a thing as too much money. Hes the richest man in America, and he gives a lot of it away to causes of his choice. The beauty of Americas free market is something Forbes magazine includes in Gates profile, which lists his net worth at $51 billion: self-made. That means its possible for others to succeed as well.
Gates made a fortune because people decided they wanted computers and software. Americans like to buy what we want. We like cheeseburgers and sodas, too. But if being profitable is criminal, then wed better call for price controls on Coca-Cola and Big Macs. And if you really want to get serious, youd better hide your cash under your mattress rather than helping those high-earning banks to profiteer large amounts off your accounts.
As ridiculous as this discussion may seem, this is exactly where politicians on both sides of the aisle have taken the issue of gasoline prices. After prices spiked from hurricane-induced supply interruptions, legislators started calling for Congress to consider a windfall profits tax to punish oil companies for making more money than usual. Frankly, I cant imagine this in many other industries. If a movie was a box office hit, would Congress steal a chunk of its ticket sales because it made too much? The problem with this idea is clear: in order to tax profits, someone has to decide how much is too much, and that someone is the government.
Plenty of economists have spoken out against a windfall profits tax on oil companies. In fact, more than 250 of them wrote an open letter to Congress pleading for sanity to prevail on the issue. They pointed out what happened the last time the government imposed such a tax on oil in the 1980s. The results werent anything todays politicians want to see: domestic oil production fell; oil imports rose; and the tax didnt even provide much of a government windfall. Looking at the facts, there is absolutely no reason to consider repeating such a gross policy blunder.
A windfall profits tax would do the opposite of what we need to do for our energy industry. The only way to provide Americans gasoline at low prices is to allow oil companies to make the profits they need to expand production and continue exploring for more oil.
The oil companies arent pocketing all those profits theyre distributing them among their shareholders and investing in the future. As long as companies are allowed to prosper, we will benefit by having access to products we want. Our leaders need to support American businesses and the American consumer. If we start to limit prosperity for one, we will limit prosperity for all.
Herman Cain is the former president and CEO of Godfathers Pizza, Inc. and currently is CEO and president of T.H.E. New Voice, Inc., a business and leadership consulting company. He is the National Chairman of the Media Research Centers Business & Media Institute.
