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No Place for Profits Tax
I was disappointed to read your call for an “excess profits tax” in your recent editorial, “Big Oil May Be a Big Loser Because of Piggish Excess”. The first rule of being in a hole you don’t want to be in is to stop digging. Does anyone remember what happened when Jimmy Carter tried this in 1980? According to the Congressional Research Service, the 1980s windfall profits tax depressed the domestic production and extraction industry and furthered our dependence on foreign sources of oil.
The real answer to how we got in this mess is to take a hard look in the mirror. We, as a nation, have squandered a real opportunity since the 1970s oil shortages to prepare and implement a meaningful comprehensive energy policy. In real terms, the price of gasoline has increased less since the early 1980s than the average price of other consumer goods. Whether people want to believe it or not, in a free market economy oil prices are driven by supply and demand. Due in part to political turmoil in Africa and the Middle East, and by increased demand by the growing economies of India and China, demand is up sharply. Simple economics tells us that in response, prices rise. In the meantime, we have done very little to conserve energy or lessen our dependence on oil.
Over the past 25 years, oil companies contributed more than $2.2 trillion in taxes, after adjusting for inflation, to federal and state governments—including excise taxes, royalty payments and state and federal corporate income taxes. That amounts to more than three times what they earned in profits during the same period, according to the latest numbers from the Bureau of Economic Analysis and U.S. Dept. of Energy.
It will be tough and painful and require real change, but the real answer is to prepare and implement a comprehensive energy policy that encourages conservation, broadens our reliance on alternative energy sources and provides incentives for real innovation in energy management. A windfall profits tax on oil companies will only dig us deeper into the hole we started in the 1970s.
I would only agree with a profit tax if the money were placed off-budget and used specifically for transportation improvements or research to viable energy alternatives. Too often taxes and fees are placed on products and those monies never get to the intended destination. The government has to look at itself as a problem, just as you correctly stated, for not doing things to increase available supply or incentives to look at energy alternatives.
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