Debate about excess profit tax – tax oil multinationals more heavily? Top economist Hüther considers this dangerous

Debate about excess profit tax: tax oil multinationals more heavily? Top economist Hüther considers this dangerous

BP, Shell, Total: Oil companies’ recent billions in profits lead to anger and calls for an excess profit tax. But when does profit actually become “immoral”? Economists have a clear answer.

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“More money than God” would make some oil companies, Joe Biden said. As a devout Christian, the US President probably doesn’t mean that literally. In any case, critics do not describe the current billion-dollar revenues of the multinationals as divine, but rather as devilish.

Economists, on the other hand, speak of “accidental profits” in their own language. In the past few days, practically all large corporations have presented their quarterly figures – and shone with billions in revenue.

Exciting, but no time right now?

Energy crisis: BP, Shell, Total multiply profits

A brief overview: BP tripled its profit in the second quarter compared to 2021. Total had to be content with an increase of 159 percent. The US giants Chevron and Exxon made almost four times as much profit as in the same period last year and Shell even managed a plus of 429 percent.

Share prices are experiencing their umpteenth spring and have been rising for weeks to levels that their shareholders themselves could hardly have dared to dream of. Oil companies are benefiting from the rise in oil and gas prices as a result of the war in Ukraine.

But what do the corporations do with the money? It would be nice if they invested in green technologies. They do too, but only to a small extent. They’re buying back their own stock, reducing debt, increasing cash flow and dividends for shareholders. This also plays a certain role in moral considerations.

When are crisis profits “immoral”?

The fact that companies make extraordinary profits in crises is as old as retail. A well-known example from the recent past are the mask manufacturers in the wake of the Corona crisis. Or Biontech, which saved thousands of lives with its invention of a vaccine.

Based on these examples, the tricky question can be derived: When is such a crisis profit “immoral” and a tax justifiable? And when do companies unjustly have to give up some of a “legitimate” profit? Who should decide when profits are “good” or “bad”? This also includes the question: from what height?

Michael Huether: “It is very difficult to identify a so-called excess profit”

Economists have an unequivocal answer to the question of whether the state should reclaim the special profits from the oil companies through an excess profit tax: “No, because it is very difficult to identify what is known as excess profit. It is not clear when a profit is excessive profit and how long such a profit lasts,” says Michael Hüther from the German Economic Institute (IW).

Such a measure would make tax policy seem arbitrary because it is complicated to implement and could lead to potential collateral damage. “The state should not make any moral judgments about which profits are desirable and which are not,” says Hüther.

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They want parts of the SPD and the Greens – the FDP rejects them

Now, politicians don’t always do what economists say. Above all, the topic of excess profit tax is part of a larger discussion within the traffic light coalition: Finance Minister Christian Lindner (FDP) wants to limit the deficit of the federal budget in 2023 to 18.2 billion euros. That would mean that after three years full of justified exceptions, the federal government would once again comply with the debt brake.

But there are various reasons to assume that the federal government needs more money than previously estimated. In addition to higher taxes for people with high incomes, parts of the SPD and the Greens are also demanding a surplus tax. The FDP rejects this. The 2023 budget will be decided in November. The discussions should continue until then. Incidentally, the oil multinationals are still presenting their figures for the third quarter beforehand.

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The article “Tax oil multinationals more heavily? Top economist Hüther thinks that’s dangerous” comes from economic courier.

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