Bizarre Economics of a Windfall Profits Tax
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%.
Was this page helpful to you?
Thank You!
The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you. Would you consider contributing to our work?
Contribute to the Tax FoundationShare This Article!
Let us know how we can better serve you!
We work hard to make our analysis as useful as possible. Would you consider telling us more about how we can do better?
Give Us Feedback