Out of Control Policy Blog

A Windfall of Bad Ideas

This December 2005 piece by CEI's Marlo Lewis, Jr. if filled with good stuff.

Some nuggets:

    Economists Robert J. Shapiro and Nam D. Pham estimate that Senator Byron Dorgan's (D-N.D.) "Windfall Profits Rebate Act of 2005" would reduce the shareholder value of oil company stock by as much as $122 billion ... [T]he financial losses from "windfall profits" taxes would be widespread, because mutual funds and retirement accounts hold approximately $267 billion worth–about 41 percent–of oil company stock.

    Oil industry profits are large in absolute terms because the customer base is large. Oil companies sell astronomical quantities of fuel–the equivalent of about 230 million barrels of oil every day. The amount of money they earn per gallon of gasoline sold is relatively small–a profit of 9 cents per gallon in the third quarter of 2005. Although that is almost double the 5 cents per gallon profit they earned in the third quarter of 2004, it is still well below the 18.4 cents per gallon that the federal government collects in gas taxes, or the 44.5 cents per gallon that the State of New York collects. Oil companies achieve multi-billion-dollar profits by making modest returns on gigantic sales volumes–not by "gouging" their customers.

    According to the Congressional Research Service, the "windfall profits" tax Congress enacted in 1980 diverted $79 billion from potential investment in energy infrastructure, reduced domestic oil production by as much as 6 percent, and increased petroleum imports by as much as 16 percent.

But wait, another mantra of the windfall tax pushers is "energy independence."

Ted Balaker is Producer

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