Ken Silverstein
EnergyBiz Insider
Editor-in-Chief

Recall the windfall profits tax? No, not the one implemented as part of the Jimmy Carter presidential administration. It's the one proposed by candidate Barack Obama earlier in the year -- the one that would make Big Oil pay a tax on their "excessive" profits and the one that would shift that money over to ordinary folks to pay energy bills.

Well, it died. President-elect Obama had a change of heart. When he made that proposal in the spring, the price of oil was well over $100 a barrel and Americans were pretty peeved. Their investment portfolios were taking a big hit while they read about Exxon reporting quarterly profits in the multi-billions.

Now the price of a barrel of oil is relatively cheap, less than $50. One of Obama's campaign aides told the Houston Chronicle that $80 a barrel was the threshold. Anything more than that and the president-elect would send the foot soldiers over to Capitol Hill to lobby anew. Anything less than that and the oil companies would be safe.

Government's job is to assess taxes and then to distribute that revenue to where it is needed. Such policies, of course, are dynamic and must adjust with the times. Each entity is responsible for paying its "fair" share -- amounts that are offset by tax breaks and subsidies so as to motivate certain types of behavior. The problem with declaring profits extreme in a market-based economy is where exactly to draw the line.

It's one thing to tax an industry once on its profits. But then to hit 'em again may be a bit much. Would anyone step up -- other than lawmakers from Texas and Louisiana -- to bail out Big Oil if prices sunk to the single digits?

When the original windfall profits tax was instituted in 1980, it had been intended to recover the "excessive" profits made by the oil companies as part of the previous Middle Eastern oil embargo. When the levy was tossed out in 1988, it had been considered a failure given that it raised 80 percent less revenue than originally anticipated and it had discouraged domestic oil production and encouraged foreign imports.

"A windfall profits tax is bad policy at any price, and the history books are filled with examples to prove it," says Thomas Pyle, president of the Institute for Energy Research. "The president-elect's decision to reverse course on imposing this Carter-era burden on those who explore for and produce American energy is a heartening development -- both for consumers and an economy struggling to claw its way out of recession. And although the president-elect's spokesman was eager to cite oil's recent drop in price as the reason for this shift in policy, I hope the real explanation can be traced back to the millions of American jobs that would be lost under such a tax, and the billions of barrels of oil we'd lose the ability to produce as a result of it."

Luxury Tax

None of this is to say that Big Oil is above scrutiny. After all, the five leading companies last year made about $120 billion in profits. There's been talk on the Hill about eliminating some of its tax breaks so that those revenues could promote green energy. That's one of those ever-evolving policy realignments -- not a tax on top of tax.

That could make sense as the global energy paradigm shifts so as to minimize carbon footprints. Moreover, clean tech industries are one of the bright spots in the American economy, prov


 

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