Windfall Profits Tax – What is a Windfall?
By Marc Smith
October 16, 2009 1:05pm
Nancy Pelosi again mentioned a windfall profits tax on health insurance companies to help cover the cost of healthcare reform. These ideas have been floated in the past, most recently against oil companies for the price of oil and therefore gasoline in the summer of 2008. I think this is a horrendous idea.
The very nature of a windfall profits tax does not make sense. The idea is penalize excess or “windfall” profits within an industry. How is the term “windfall” defined? What is an acceptable level of profit for an industry? Who decides what that level is? Clearly in this case, it’s the government. I personally do not want the government deciding on an acceptable level of profit for any industry.
I wrote a piece last week on health insurer profits where I looked at average profit margins of health insurers versus other well-know corporations. The results show insurance companies are some of the least profitable corporations out there. (See article here) It’s very popular in main stream media to talk about excessive profits and executive compensation and stir up populist dissent, but the actual figures just do not support these arguments.
Back to the health insurer windfall profits tax. I’m opposed to this on two grounds:
- There is no such thing as a windfall profit. Companies make money based upon how much they sell their products for and how much it costs to operate their business. Profit is profit and calling anything a “windfall” is just an excuse for the government to take an even larger share of corporate earnings (the US already has an overly burdensome corporate tax rate).
- Health Insurance companies are not overly profitable. An average industry profit margin around 3% cannot be considered excessive by any rational being. Even if I was logically supportive of a windfall profits tax, there is no way to argue that health insurers are generating windfall profits.
I view this potential tax as just another way for the government to increase revenue for the purposes of paying for this particular program. Even if you are in favor of this program, this type of tax is bad precedent and who’s to say you personally, your industry or your employer won’t be the next victim of governmental taxation abuse?
Please send your thoughts or comments on the windfall profits tax for health insurers to marc@marcdown.com.