Windfall Profits Tax - Criticism

Criticism

In a February 12, 2008 editorial titled "Record Profits Mean Record Taxes," Investor's Business Daily said that regular income taxes already take into account the high profits, and that there's no need to do anything extra to tax or punish the oil companies. As an example, the editorial states "Consider the magnitude of the contributions from Exxon alone. On those 'outlandish' 2006 profits, the company paid federal income taxes of $27.9 billion, leaving it with $39.5 billion in after-tax income. That $27.9 billion was more than was collected from half of individual taxpayers in 2004. In that year, 65 million returns — which represent far more than 65 million taxpayers because of joint returns — paid $27.4 billion in federal income taxes."

In an August 4, 2008 editorial titled "What Is a 'Windfall' Profit?" The Wall Street Journal wrote, "What is a 'windfall' profit anyway? ... Take Exxon Mobil, which on Thursday reported the highest quarterly profit ever and is the main target of any 'windfall' tax surcharge. Yet if its profits are at record highs, its tax bills are already at record highs too... Exxon's profit margin stood at 10% for 2007... If that's what constitutes windfall profits, most of corporate America would qualify... 51 Senators voted to impose a 25% windfall tax on a U.S.-based oil company whose profits grew by more than 10% in a single year... This suggests that a windfall is defined by profits growing too fast.... But if 10% is the new standard, the tech industry is going to have to rethink its growth arc... General Electric profits by investing in the alternative energy technology that President Obama says Congress should subsidize even more heavily than it already does. GE's profit margin in 2007 was 10.3%, about the same as profiteering Exxon's." The profit margin listed in the article for General Electric included all of their diversified industries, of which energy technology is only one among many (such as aircraft engine manufacturing and media production), whereas ExxonMobil deals strictly with oil and gas and therefore has profits solely derived from oil and gas.

Due to intense lobbying by industry, trade offs between government and industry are often set in place so that the effects of windfall taxes are minimized. When the Labour Party came to power in 1997 it introduced a windfall tax on utility companies. The public affairs team of Centrica, however, had already begun lobbying the Labour Party while they were in opposition. So although Centrica had to pay the windfall tax, the government agreed to scrap the gas levy. “Even after the windfall tax we came out ahead” their public affairs director was later quoted as saying.