In part one of this series, I argued that we need to think about federal budget components, and I started with Social Security. In this installment, I’ll propose something heretical: an excess profits tax.
War-time excess profits taxes were the norm in the 20th century. Congress levied them during World War 1 (1917-21), World War 11 (1940-45), and the Korean War (1950-53).
During World War II, the excess profits tax was 95 percent on all corporate income above peacetime earnings. The excess profits tax attempts to account for above-average profits that result from government spending. Think of it as returning money to the public purse from which it came. For example:
During the Korean War, Congress enacted an excess profits tax meant to keep military contractors from, well, profiteering. In its infinite wisdom, Congress defined excess profits as anything above what a company had been making during the peacetime years 1946-1949.
Boeing decided to invest the money it would have paid in taxes into the development of the 707, since “for every dollar of the dice roll, only 18 cents of it would have been Boeing’s money to keep anyway.” That’s because the Boeing of the 1940s was primarily a military operation; with the post-WWII drop in military sales, profits were, ummm, flat.
Had we had an excess profits tax in 2003, would we still be in Iraq and Afghanistan? Halliburton CEO David Lesar saw his stock increase by an estimated $78 million in the two years following the 2003 Iraq invasion. In 2007, Michael Brush wrote for MSN Money:
Armor Holdings, which sells vehicle and personnel armor, saw defense-related revenue shoot up 2,747% between 2001 and 2006, to $634.9 million.
However, a straightforward implementation would apply an excess profits to tax to all government (local, state or federal) contracts, whether or not they were Pentagon-related, and extend the tax beyond corporate profits to renumeration and stock held by officers, board members and shareholders of said firms. Precedent includes regulatory rates set for public utilities.
In case it’s not clear, I do not think people and companies should reap excess profits due to government largess, even if it is a time-honored way to riches. (In this one area, I retain the philosophy of Ayn Rand that influenced me in my teens.) If it’s not possible to end government spending (and that’s not going to happen any time soon), then in my opinion the next-best thing is to capture part of the profit stream enabled by public funds and redirect those funds to the treasury from which they came.
Known for gnawing at complex questions like a terrier with a bone. Digital evangelist, writer, teacher. Transplanted Southerner; teach newbies to ride motorcycles. @kegill (Twitter and Mastodon.social); wiredpen.com