Bizarre Economics of a Windfall Profits Tax April 29, 2006 Andrew Chamberlain Andrew Chamberlain With rumors of a possible windfall profits tax on oil companies still circulating in Washington, we have an op-ed in this morning’s Los Angeles Times exploring the bizarre economics behind such a proposal. An excerpt: AS GAS PRICES top $3 per gallon, politicians are cashing in big — by throwing bombs at the U.S. oil industry. As in every crisis, Washington is suffering from a predictable case of “do something” disease. Products of the ready-to-eat microwave culture, Americans want an instant solution to high energy costs, and this lends itself to grandstanding and election-year maneuvering by politicians of all stripes. Numerous lawmakers, from Senate Minority Leader Harry Reid (D-Nev.) to Sen. Arlen Specter (R-Pa.), are lining up to support a new federal windfall profits tax, with the aim of redistributing profits from “greedy” oil companies. But lawmakers could benefit from a history lesson. The last time this country experimented with such a tax was the Crude Oil Windfall Profit Tax Act of 1980. According to a 1990 Congressional Research Service study, the tax depressed the domestic oil industry, increased foreign imports and raised only a tiny fraction of the revenue forecasted. It stunted domestic production of oil by 3% to 6% and created a surge in foreign imports, from 8% to 16%. Read the full piece here. Stay informed on the tax policies impacting you. Subscribe to get insights from our trusted experts delivered straight to your inbox. Subscribe Share Tweet Share Email Topics Center for Federal Tax Policy Oil, Gas, and Transportation Taxes Tags Environmental and Energy Taxes Transportation Windfall Profits Taxes