One of the provisions under consideration in the tax extenders discussion is a reinstatement of 50 percent bonus expensing for equipment. This would strengthen investment spending and boost the sluggish recovery. It has...
- The Tax Policy Blog
- What Does Obama Mean When He Says "Windfall Profits Tax"?
What Does Obama Mean When He Says "Windfall Profits Tax"?
When I wrote about Barack Obama's windfall profits tax proposal last week, I described it as "a tax on oil sold over the arbitrary price of $80 per barrel." Like the Carter-era WPT, such a tax isn't really a tax on profits at all—it's a gross tax on production, better categorized as an excise tax. However, since then, both the Washington Post and Greg Mankiw have described the Obama proposal as a true tax on profits. The Post, while opposing the proposal, described its status as an actual profits tax as a partial mitigant:
Mr. Carter's tax was levied per-barrel, so it directly increased the marginal cost of producing crude—and made figuring out which barrels to tax ridiculously complicated. Mr. Obama wants a surtax on net oil company profits above a "reasonable" level.
So, which description is right? Unfortunately, it's difficult to tell from information provided by the Obama campaign.
At least as of August 1, Obama was proposing a Carter-style, per-barrel excise tax when oil was sold above a trigger price (in this case, $80). See the following screenshot from the "Energy & Environment" section of the Obama website, as captured by Google's cache on that day:
However, the Obama website has since been modified to eliminate any mention of a trigger price for the tax. The relevant section of the site simply says that "Obama will enact a windfall profits tax on excessive oil company profits." His full length energy plan states that "Barack Obama will require oil companies to take a reasonable share of their record-breaking profits" and pay them as taxes. Neither statement makes a specific reference to the taxation mechanism.
While the new statements say the tax will be on "oil company profits," I would not assume that Obama has abandoned his per-barrel tax proposal in favor of an actual profits tax. After all, for thirty years, the term "windfall profits tax" has been used to refer to a tax that is not actually imposed on profits. It is also possible that (1) Obama is trying to leave open the possibility of structuring the tax in a number of ways, or (2) Obama still supports a per-barrel tax but does not want to propose a specific trigger price of $80.
We've reached out to the Obama camp for clarification of their proposal, but so far have not heard back.
See our take on windfall profits taxes.
<!--[if gte vml 1]-->
Buy this blogger a cup of coffee!
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official weblog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.