A group of professors recently released a study that finds insufficient discussion of the total cost of taxes in public finance textbooks. They find that common textbooks fail to fully include the total cost of taxes...
- The Tax Policy Blog
- What Does Obama Mean When He Says "Windfall Profits ...
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]-->
Subscribe to the Tax Foundation Newsletter
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.