One of the most frightening things about the impending presidential election is how little the three major candidates still in the race seem to know about economics.  McCain acknowledges it is not his strong suit (at least he is honest).  Clinton and Obama seem to be in a race to see who can promise the most new government spending and the most socialistic policies.  Yes comrades, the USSR may have folded, but we are winning on the western front.

The latest in frightening statements is from Clinton.  She is now proposing to confiscate the "windfall" profits of the oil companies to fund new energy technologies.  (Drilling where we already know there is oil is too pedestrian and we would rather wait for 10 years for new technologies come on line).  Aside from the socialist implications of penalizing companies who are making a profit, Clinton's plan is horrible from an economic point of view.

Just as an aside, the "windfall" profit these evil corporations have made amount to a profit rate of about 7% - How dare they?  Out of that has to come dividends, reinvestment to find new sources of energy and making up for the years in which they had losses.  Few investors would consider a 7% profit to be a windfall.  The only reason that the gross amount is so high is that energy prices are high - something that Clinton will certainly escalate.

In case anyone missed out on business law 101, companies are not people.  Corporations, LLCs, etc. are fictional entities; creations of law which allow groups of people to function together.  Because they are fictional entities, corporations do not really pay taxes.  Oh yes, the check may have the company's name on it, but the money really came from one or more of the following sources: 

1)  The money may come from the shareholders of the company.  While some Americans have bought into the idea that shareholders are just part of the super rich who are stealing money from working people, the reality is that most American workers now have IRAs, 401Ks and mutual funds.  Any money the company does not pay in dividends is money that does not go into the IRAs, 401Ks or mutual funds of any of us who own stock directly or indirectly.  In other words, we have all paid an investment tax.  (This is in addition to the double taxation already paid on dividends.)

2)  The money can come from the company's employees.  This may mean lack of raises or even pay cuts.  It can also mean lost jobs if the company has to divert those resources to Clinton's success penalty.

3)  The most common source for companies to get the money to pay the success penalty is from consumers.  Yes, you and I will be paying the "windfall" profits tax by higher prices at the pump and utility bills.  The company has to pass the tax along or its shares will drop like a rock.

Of course, there is another option.  Companies can become ex-patriots.  Yes, numerous traditional U.S. companies have moved off shore to avoid the taxes which the U.S. levees on them.  The U.S. has one of the highest corporate tax rates in the world.  How do you compete with foreign corporations who do not  have to pay these taxes - they do not have to lower their returns to investors, lay off employees or charge customers higher prices.    A few years ago Stanley Tools looked to Bermuda.  Not for a vacation, but to reincorporate to save $30 Million a year in U.S. taxes.  A host of other companies have done the same thing.

The U.S. is driving off our good companies at the very time when they can least afford it.  European countries are increasingly becoming market oriented and U.S. tax laws make our companies less competitive.   When our economy tanks at least we can feel good that we stuck it to those even oil companies.  Well, at least until we learn:

we have met the enemy - and it is us.