Only 27 minutes after the Labor Department released a report showing that unemployment for July was at 5.7%, Barack Obama announced his “Emergency Economic Plan”. When presented in Congress his bill could easily be titled as the “Robbing Peter to Give to Paul Act”, as this is the solution he is offering. Much like President Bush’s economic stimulus patch earlier this year, Obama wishes to offer ‘rebates” to working families to help ease the burden of rising energy costs.

Unlike President Bush who simply increased the budget deficit in order to facilitate his stimulus package, Obama at least has a plan to fund his rebate package.

Friday’s proposal says Obama “is proposing to offset the cost of his emergency energy rebates over the next five years by enacting a windfall profits tax on big oil companies.”

“Obama simply asks that big oil companies contribute a reasonable share of the windfall profits they receive from high oil prices over the next five years to pay for emergency assistance for families right now,” the campaign says.

This is a very popular proposal to the majority of Americans who believe the falsehood that the oil companies are gouging the American consumer with high prices. It is also a very popular proposal to the far left, otherwise known as the “pay your fair share” crowd, who continually ask for higher taxes on the top income earners for the benefit of lower income earners. What this proposal does however, is ignore reality in favor of political propaganda.

Although Exxon’s quarterly report yesterday showed the oil company earned record profits for the last quarter, what the media and Barack Obama will not tell you is that they are doing so on even lower margins. For the second quarter of 2008 Exxon’s profit margin was only 8.5% meaning for ever dollar of revenue, only 8.5 cents were retained as a profit. Furthermore, Exxon’s tax rate had increased from 43% to 49%, meaning the government collected almost $11 billion in tax last quarter from Exxon alone. This number only represents income tax, when all taxes are included Exxon paid a whopping $32 Billion in taxes last quarter, or three times the amount of profits it retained for itself.

Obama’s plan is to confiscate even more money from oil companies in order to give it to American families…. so they can buy more oil. With the price of gasoline at its current levels many Americans have been forced to drive less, or utilize public transportation more, leading to an decrease in demand. This is, in part, what has cause the price of oil to come back down in recent weeks, because oil, like any other commodity, is only worth what people will pay for it. Offering handouts to Americans so they can continue purchasing oil at over inflated prices only serves to inflate those prices even more.

There is a solution to rising energy costs, however the solution does not involve Congress throwing money at the problem.

Update Ed Morrissey reminds us that the windfall profit tax has already been tried, and was a complete failure:

CRS [Congressional Research Service] also found the windfall profits tax had the effect of decreasing domestic production by 3 percent to 6 percent, thereby increasing American dependence on foreign oil sources by 8 percent to 16 percent. A side effect was declining, not increasing, tax collections. Figure 1 clearly shows that while the tax raised considerable revenue in the initial years following its enactment, those revenues declined to almost nothing as the domestic industry collapsed.

So Carter’s windfall profit tax actually resulted in less domestic oil production, and an increase in our dependancy on foreign oil. The revenue collected was only about 25% of what was forecasted as well, begging the question, where will Obama get the money from if/when his revenue projections prove to be over estimated as well?

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Barack Obama, Election 2008, Features, Politics