Oil Company Tax Hikes Lead to Less Supply – Not More

Ever since Exon Mobil and the other major oil companies announced their most recent corporate earnings, Democrats, from Obama on down, have been drooling all over themselves at the prospect of hiking taxes on the country’s domestic hydrocarbon-based energy producers. They have even gone so far as to assert, stupidly, that raising oil company taxes would lead to reduced prices for gasoline at the pump. This despite the fact that no one seems able to explain how raising the cost of an item results in a greater supply and a lower price.

Over at his blog, Carpe Diem, economics professor Mark Perry notes a report from the UK demonstrating that Obama and the Democrats don’t know what they’re talking about, and that raising taxes on oil production companies only leads to reduced supply and higher prices.

North Sea oil production has slowed to its lowest level since records began 15 years ago following the Chancellor of the Exchequer’s recent tax raid on the industry. An update from the U.K. Department of Energy yesterday showed the biggest fall in oil production since quarterly records started in 1995. Gas production fell 17.6 per cent from a year ago.

The slowdown follows the Chancellor’s controversial Budget decision to increase the supplementary tax on North Sea Oil production to 32 per cent from 20 per cent to pay for a cut in petrol duty. The Chancellor’s decision drew an industry-wide outcry and claims that mature fields would be closed.

An Oil and Gas UK survey warned that a quarter of 240 potential projects in the North Sea were less likely to go ahead after the tax increase.

The British government has stated that production levels will increase, returning to pre-tax increase levels, however industry officials are denying the government’s misplaced optimism

Says Professor Perry:

Let this be a lesson to the Senate Democrats who are proposing to burden (punish?) America’s five biggest oil companies with $21 billion in additional income taxes over the next decade.

Increasing oil production costs by hiking taxes simply won’t lead to increased supply or lower prices, no matter what Obama and the Democrats say to the contrary.

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