I. Introduction
Surprise!
In 2005, Big Oil[1] again turned one of the larger profits it has seen
in recent years, with companies like Exxon Mobil boasting fourth
quarter numbers 27% greater than last year's profits (which, by the
way, were nothing to sneeze at).[2][3] And why shouldn't we be
surprised? After more than a year of paying a sky-high premium at the
pump and in the home, it is plain to see that the oil industry is not
sharing the burden of the high price of fuel with the consumer. Led by
Senate Democrats, a bill has been proposed to impose a one-time-only $5
billion windfall tax on big oil to help offset the country's more than
$300 billion deficit.[4]
II. Implications
There is no question that Big Oil can afford the hit. Five billion
dollars is chump change spread among corporations who routinely keep
tens of billions of dollars in their coffers.[5] The tougher question
is this: what justifies the imposition of a special tax on an industry
solely because it manages to rake in big bucks during times of greater
economic concern?
A
look to our recent taxing history provides some clues as to the logic
behind and the consequences of such a tax. In 1980, the Carter
administration signed into law the Crude Oil Windfall Profit Tax Act
(COWPTA)[6], which, contrary to its name, was not a profit tax, but
rather an excise tax imposed on the production of new barrels of
oil.[7] The passage of COWPTA was the by-product of a political
dealing with the primary purpose to lift the decade-long price freeze
on petroleum initiated during the Nixon years.[8] It was feared that
the lifting of such a price freeze would result in an undeserved
temporary inflation in oil industry profits. Therefore, the bill
proposed to allow the American people to recapture some of their funds
which would otherwise be lost to the freeze-lift, which funds would
then be placed in an "energy trust fund [to] finance spending on
programs to solve the energy problems."[9] Additionally, COWPTA was
meant to disincentivize new oil production in order to slow depletion
of the world's oil reserves.[10] COWPTA was repealed in 1988 because
its revenues were insignificant.[11]
It doesn't take a genius to analogize the momentum which pushed
COWPTA through to the political climate we find ourselves in today. We
are not better off environmentally now than we were in the eighties,
indeed most say considerably worse.[12] The thought of Big Oil
profiting in the wake of Katrina and Rita[13] while an oil-driven war
is being waged is a tough swallow for Democrats and Republicans alike.
Why shouldn't they relinquish some of their ill-gotten gains? It is
unquestionable that it is within the authority of Congress to impose
such a seemingly punitive tax.[14] So why wouldn't they? Here's why:
just like COWPTA, the proposed windfall profit tax is much more a
poliltical salve and public opiate than it is a worthwhile piece of
meaningful taxation legislation.
III. Conclusion
When it comes right down to it, corporate externalities are a
systemic problem. Industries daily make profits that could be
criticized as undeserved, corporations whose lines of business raise
substantial social, environmental and health concerns (corporations who
just happen to live just a bit farther away from the fault line of
public concern than does Big Oil). If Senate Democrats feel that these
turbulent times create an opportunity to push pro-environment
legislation, the bottom line is this: they should push pro-environment legislation,
and stop wasting their valuable political capital passing fluffier and
easier tax legislation. If another windfall profit tax is successfully
pushed through Congress and approved by the president, Big Oil will get
a slap on the wrist, and another opportunity for real legislative
change will pass.
[1] "Big Oil" in this article refers to the five largest energy
corporation which were recently called to Washington, D.C. for
discussions concerning their 2005 earnings. These companies include
Exxon Mobil, Shell, Chevron, BP and Conoco.
[2] Scott Horsley, Exxon Mobil Posts Record Fourth-Quarter Profit (National Public Radio Broadcast, Jan. 30, 2006) at http://www.npr.org/templates/story/story.php?storyId=5179131&ft=1&f=1006 (Feb. 12, 2006).
[3] Senator Harry Reid, My Speech on Gas Prices on the Senate Floor, Website for Harry Reid Democratic Senator from Nevada, at http://reid.senate.gov/gasprices0504.cfm
(Feb. 12, 2006)(attesting to the fact that companies like
Chevron-Texaco posted first quarter earnings up 294% from first quarter
2003).
[4] Nelson D. Schwartz, Oil Barons, Pay Up, Fortune Magazine, at http://money.cnn.com/2005/12/09/commentary/pluggedin_fortune/
(Feb. 12, 2006)(The deficit is currently being helped along by the $6
billion a month it takes to fund the Bush administration's current
agenda in Iraq.).
[5] Id.
[6] 26 U.S.C.A. § 4986 et seq.
[7] Joseph J. Thorndike, Historical Perspective: The Windfall Profit Tax — Career of a Concept, Tax History Project, at http://taxhistory.org/thp/readings.nsf/0/edf8de0458e4b14852570ba0048848b?OpenDocument (Feb. 12, 2006).
[8] Id.
[9] H.R. Rep.96-304, at 2 (1980), reprinted in 1980 U.S.C.C.A.N. 589, 589.
[10] Id.at 4, 591.
[11] Supra note 7.
[12] See Brian J. Fleay, U.S.A.'s Triple Energy Whammy in Electric Power, Natural Gas and Oil (Report, Jan. 10, 2001), The Coming Global Oil Crisis, at http://www.oilcrisis.com/news/report.asp?id=1565 (Feb. 13, 2006)(the world has been increasing its annual consumption of oil since the mid-eighties); see also T.J. Blasing, Christine Broniak & Gregg Marland, Estimates
of Annual Fossil-Fuel CO2 Emitted for Each Satae in the U.S.A. and the
District of Columbia for each year from 1960 through 2001, Carbon Dioxide Information Analysis Center, at http://cdiac.esd.ornl.gov/trends/emis_mon/stateemis/emis_state.htm (Feb. 13, 2006)(per capita carbon monoxide emissions have been steadily increasing since after the early eighties).
[13] Ben Lieberman, More Domestic Energy: The Right Response to Katrina and Rita, The Heritage Foundation Website, Webmemo No. 868, Septeber 29, 2005, at http://www.heritage.org/Research/EnergyandEnvironment/wm868.cfm (Feb. 12, 2006).
[14] Ptasynski v. U.S., 55o F.Supp 549, 555 (D.C. Wyoming, 1982), rev'd on appeal
462 U.S. 74 (1983)(reversing the district court's holding that an
Alaskan exemption from COWPTA was unconstitional on the grounds of a
lack of uniformity of application across geographical areas), citing McCray v. U.S., 195 U.S. 27 (1904)(raising revenues is a sufficient justification for the imposition of a tax).