Taxing oil punishes consumers
by Tom Schatz
It is no secret that Iran is making serious threats to punish America
with higher oil prices. Given the instability in Iran and in other
oil producing nations like Nigeria and Russia, our energy security
and energy policy is again taking center stage. Yet instead of focusing
on appropriate solutions-the need for increased domestic oil and
natural gas production-the U.S. Senate is seeking to weaken our
domestic oil production by imposing taxes or other punitive measures
on a few companies.
Early talk about imposing a "windfall profits tax" on
the oil industry appears to have failed, but other backdoor tax
provisions remain alive in the Senate version of the Tax Relief
Act. One provision would revalue and re tax supplies of oil reserves,
forcing companies to pay higher taxes on their inventories. Another
provision would deny credit on foreign income and revenue. All industries
are able to take such a credit, but this bill selectively changes
the rules for one industry. Those measures will threaten oil exploration
and the development of new energy sources at a time when we are
looking for greater energy security.
The billions raised from these punitive tax hikes will not reduce
the cost of a gallon of gasoline one penny, nor will it help consumers.
Instead, Congress is likely to waste it on pork barrel projects,
like more bridges to nowhere in Alaska.
These attempts to tax the "windfall profits" of the oil
industry have already been tried and only increased our dependence
on foreign oil.
According to a 1990 Congressional Budget Office study, the windfall
profits tax in place from 1980 to 1988 cut domestic oil production
from between 3 and 6 percent, while oil imports rose from between
8 and 16 percent. But some members of Congress would rather grandstand
than understand, so these politicians have pushed for "backdoor"
profits taxes.
The Senate's punitive measures ignore other facts. While recent
news reports have cited record earnings for oil companies during
the fourth quarter, the reality is profits per dollar for the oil
industry are very much in line with the national industry average.
In fact, these earnings per dollar were less than half of the average
profit ratio for Bank of America, Citigroup, Yahoo and Apple. In
addition, millions of Americans have oil and natural gas stocks
and mutual funds in their 401ks, IRAs or other savings and benefit
from strong performance by those industries. So punitive tax increases
targeting so called big oil also harms millions of American investors.
Members of Congress may also want to ask themselves another question.
At a time when a number of leading American industries like the
airlines and the big three auto makers are struggling financially,
why would we punish a sector of our economy that is succeeding?
Particularly one to which we are looking to deliver greater capacity.
The hypocrisy among members of Congress in taxing oil profits while
forbidding drilling in Alaska, off the Gulf Coast, or virtually
anywhere else, displays a fundamental misunderstanding of basic
economics.
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