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Home / Tim Worstall /We are very amused by calls for a windfall tax

We are very amused by calls for a windfall tax

Summary:
BP reports a .4 billion loss for the quarter and this is taken to show the excessive profits of the oil companies which must therefore be taxed away. At which point someone is very confused here and it’s not us.BP’s profits more than doubled to .2bn (£5bn) in the first three months of the year, adding to pressure on ministers to impose a windfall tax to aid households struggling with soaring energy and fuel bills.For that is operating profit and also that’s at replacement cost. Which isn’t how corporations are taxed. BP wrote down the value of its business in Russia, and including the resulting bn charge, reported a quarterly headline loss of .4bn, its biggest ever.That’s actually the relevant figure. A useful proof of that being that in the actual announcement the company

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BP reports a $20.4 billion loss for the quarter and this is taken to show the excessive profits of the oil companies which must therefore be taxed away. At which point someone is very confused here and it’s not us.

BP’s profits more than doubled to $6.2bn (£5bn) in the first three months of the year, adding to pressure on ministers to impose a windfall tax to aid households struggling with soaring energy and fuel bills.

For that is operating profit and also that’s at replacement cost. Which isn’t how corporations are taxed.

BP wrote down the value of its business in Russia, and including the resulting $24bn charge, reported a quarterly headline loss of $20.4bn, its biggest ever.

That’s actually the relevant figure. A useful proof of that being that in the actual announcement the company carefully makes the difference between the pre-tax writedown and the post-tax effects of it.

We strongly suspect that the tax take - even a windfall tax - on a $20 billion loss is going to be not very much.

This is before we even begin to discuss the abject stupidity of the base idea. In a time of dearth taxing supply and subsidising demand is, we’re sorry to have to point out, abject stupidity.

A windfall tax - wrong in principle and wrong in detail. But then this is politics, isn’t it, it’s not supposed to make sense.

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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