Letter to the Editor: TRIM opposes windfall profits tax

Alarmists claimed that the oil companies were behind the run-up in prices, “gouging” the public so they could make a large profit. But as we have seen over the past few weeks, gas prices have actually fallen below pre-Katrina levels.

Despite this, some in Congress are exploring legislation that would impose a so-called “windfall profits tax” on energy company profits. Such a tax would make a bad situation even worse for consumers.

The proposal is a throwback to the failed energy policies of the past. In fact, a nearly identical tax was signed into law by Jimmy Carter in 1980, but it was repealed by a Democrat-controlled Congress after increasing our reliance on foreign oil and causing significant damage to our economy. That experience shows that this proposal is, at the very least, a bad public policy that will exact a huge toll on consumers.

A recent study by the Investors Action Foundation found a windfall profit tax would cost shareholders between $105 billion and $610 billion in unrealized value of stock and dividends over the next five years, depending on oil prices. The study indicates individuals with retirement accounts also would lose thousands, with large pension accounts that are heavily invested in oil losing much more.

“If it is again enacted, a windfall profits tax can be predicted to result in a diminution of domestic energy production, an increase in American dependence on foreign oil and a reduction in the overall supplies available to consumers,” argued Milton Friedman and more than 200 other economists, including economists from four Missouri universities, in an open letter to America’s elected officials.

Instead of exacerbating existing problems with new energy taxes, our representatives should seek to modernize the U.S. regulatory process and increase access to energy sources close to home.

The price of crude oil in the United States, like most other commodities, is determined by worldwide supply and demand. Artificially increasing U.S. energy prices through taxes and regulation will have no impact on world demand, but it will cause American consumers to suffer and American jobs to be lost.

We have seen the market’s ability to correct itself after a short-term supply interruption. The recent reduction in gas prices has happened without government intervention, so Congress must avoid overreacting to challenges in the marketplace. Although imposing a windfall profit tax may seem to play well in the press, a damaging long-term solution is not the answer to this short-term supply issue.

While some effects of Hurricane Katrina will be temporary, the potential negative impact of a windfall profit tax would be felt for years to come. Support our elected officials’ opposition to this ill-conceived tax.

Ray McCarty

Executive Director

Taxpayers Research Institute of Missouri