Falling Oil Prices Deflate Case for Windfall Profits Tax

September 15, 2006

Whenever oil prices spike, lawmakers inevitably resurrect the idea of taxing “windfall” profits of oil companies. But what happens when oil prices fall?

Not much. As noted by today’s editorial page of the Investor’s Business Daily, many lawmakers continue to call for excess profits taxes on oil companies despite sharply falling oil prices in recent weeks. From the piece:

[E]nergy prices are dropping faster than the jaws of Democratic critics of Big Oil. Crude contracts have fallen below $64 a barrel, and gasoline has skidded nearly 16% in a week and a half.

“The only place they have to go is down,” says Fred Rozell, gasoline analyst at the Oil Price Information Service. “We’ll be closer to $2 than $3 come Thanksgiving.”

Not so thankful will be the likes of Chuck Schumer. New York’s senior senator recently opined that the “fact that Big Oil is pulling in record-breaking profits while most Americans are breaking the bank to fill up their gas tanks is both despicable and mind-boggling.”

Schumer, along with colleague and presidential wannabe Hillary Clinton and others, is calling for a return of the tax on “windfall profits.” But he ignores the fact that, according to a new report from the Tax Foundation, the biggest profiteers from oil aren’t the companies that produce it and deliver it to our gas tanks, but the federal and state governments that tax it.

From 1977 to 2004, total federal and state taxes on gasoline sales came to $1.34 trillion, thanks to average taxes at the pump of about 40 cents a gallon. Oil company profits over the same period totaled less than half that — or $640 billion. And that doesn’t include the billions in taxes the oil companies paid on their profits.

The idea of “windfall” profits taxes has been around for centuries, and we’ve published a lot on them over the years. For a list of recent analyses, see our collection of resources here. For everything we’ve done on the subject, search our entire website by clicking here. For a little tax history, see our 1940 collection of resources on windfall profits taxes here.


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