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Windfall Taxes Hit Retirees Hard

1 min readBy: Gerald Prante

It turns out that our hypothesis that imposing a windfall profits taxA windfall profits tax is a one-time surtax levied on a company or industry when economic conditions result in large and unexpected profits. Inheritance taxes and taxes levied on lottery winnings can also be considered windfall taxes on individual profits. on oil companies would hurt retirees and those saving for retirement has some empirical support. A study to be released next week conducted by Robert Shapiro and Nan Pham found that a substantial share of the burden of a windfall profits taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. would be borne by retirees in the form of lower-valued pensions. From the Dow Jones Newswire:

A windfall profit tax on U.S. oil companies, advocated by some politicians who believe the industry’s soaring quarterly profits have come at the expense of consumers, would have a devastating effect on the savings and pension funds of many Americans, according to a new study.

In the study, commissioned by the non-profit Investors Action Foundation, Robert Shapiro, a former trade official in the Clinton administration who heads the economic advisory company Sonecon, and economic consultant Nam Pham found that by reducing both the market value of oil company shares and the dividends they pay, a windfall profits tax would affect the value of most people’s retirement savings.

Since 41% of oil company stocks are currently held in various forms of pension plans and retirement accounts, retirees and those currently saving for retirement would bear much of the burden of the foregone gains, the economists said in the study to be released on Tuesday and acquired by Dow Jones Newswires. (Full Story)

Unfortunately, despite the warnings brought forth by this study, momentum to impose special taxes on “big oil” continues to build as is evidenced by yesterday’s agreement by the Senate Finance Committee to impose special accounting rules on oil firms, which amounts to $5 billion in additional taxes. See previous blog post.