David Sirota served as the chief spokesman for Democrats on the
House Appropriations Committee. He is the author of the upcoming
book Hostile Takeover (Crown Publishers, 2006), which explores how
big money interests have corrupted government.
MOST CONSUMERS appreciate low prices. But don’t get too comfortable:
Unless we halt energy profiteering and enact a windfall profits tax on oil
companies, we might be kissing those low prices goodbye.
Salary.com reported that skyrocketing gas prices are swallowing many
Americans’ entire 2005 salary increases. And this winter, consumers face huge heating bills. A
windfall profits tax is a first step in stopping this price gouging. It is a simple concept: It taxes
oil profits above a certain level deemed excessive by economic experts. Not only would this tax
raise $3 billion to $4 billion a year in public revenues, but, more important, it would punish oil
companies that are trying to bleed consumers dry.
Just look at ExxonMobil to see what “swimming in cash” means. In just the third quarter of
2005, the company reported roughly $10 billion in profits. According to BBC News, that was
more than any company ever reported in American history. Fortune magazine noted that Exxon
executives, sitting on a $25 billion treasure chest, were worrying about “the headache of what to
do with all that cash”—not about Americans struggling to afford higher energy prices.
A windfall profits tax, of course, would ensure oil companies remained financially healthy
because it would kick in only when profits become egregiously excessive, as they are now. And
let’s be honest—it’s time this industry started paying its fair share anyway.
Opensecrets.org reports that since 1990 the oil and gas industry has used almost $200 million in political campaign contributions to make sure its tax rates are far lower than the average
American’s. Today, while the middle class’s tax burden rises, major oil companies are raking in
huge profits but paying just 13 percent in taxes. Meanwhile, Congress recently gave the industry
billions in new tax breaks, meaning many oil companies may end up paying no taxes at all.
To be sure, corrupt politicians, oil executives and academic naysayers will oppose a windfall
profits tax, telling us scary but unsupported stories about how it will supposedly mean disaster.
But you need only visit your local gas station or watch product prices rise to know the real disaster will come if Congress does not enact this commonsense measure and refuses to protect
America from the oil profiteers. C
from experts in the field:
OVER THE PAST quarter century, oil companies directly
sent more than $2.2 trillion in taxes, adjusted for inflation,
to state and federal governments. Corporations pass on
the cost of taxes to consumers (in the form of higher prices), investors (in the form of
lower capital gains and dividends) and/or workers (in the form of lower wages).
Today, Americans pay an average of 45. 9 cents in taxes per gallon of gas. The federal gas
tax is 18. 4 cents per gallon, while the average state and local tax is 27. 5 cents. These taxes
pumped more than $54 billion into federal and state coffers last year alone—diesel taxes
totaled $9 billion more. Almost all gas taxes are levied at a flat rate per gallon—regardless of
whether a gallon of gas costs $1.49, $2.49 or $3.49. So while industry profits go through
booms and busts, government profits grow steadily larger.
Scott A. Hodge (left) is president and Jonathan
Williams is an economist at the Tax Foundation
( www.taxfoundation.org), a nonpartisan educational
organization whose mission is to educate taxpayers
about sound tax policy.
While politicians decry large corporate profits, those profits generate large corporate
income tax payments. Over the past 25 years, we estimate that the major domestic oil companies paid $518 billion in corporate income taxes to Uncle Sam and state governments. Oil
companies pay billions more to governments in offshore royalties, severance taxes, property
taxes, payroll taxes and the list goes on.
The last time we experimented with a windfall profits tax was in the 1980s. The tax
depressed the domestic oil industry, increased U.S. reliance on foreign oil and failed to raise a
fraction of the revenue forecasted. According to a 1990 Congressional Research Service study,
the tax stunted domestic production of oil by 3 to 6 percent and created a surge of 8 to 16
percent in foreign imports.
Because it receives so much tax revenue from one industry, government runs the same
risk as every parasitic organism: Eat too much and you kill the host. The last windfall profits
tax nearly killed the domestic oil industry. A new one could finish the job. C
What do you think?
Should oil companies
pay a windfall
■ YES ■ NO
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Results in the next issue
Should the federal govern-
ment support communities
built in areas susceptible
to natural disaster?
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