Former House Ways and Means Chair Bill Archer (R-TX) sent the following in response to Monday's post on "The Windfall Profit Tax -- A Bad Idea":
Pete,
Thank you for your timely input on the windfall profit tax proposal.
What some Congressional budget watchers in both political parties want right now is for Congress to consider the forgone royalty revenues of maintaining the Congressional ban on oil and gas production from the outer continental shelf and other federal property -- just like the forgone revenue of a tax change. Representatives Abercrombie (HI), Peterson (PA) and others are working on this very visibly. One Congressional estimate is that lifting the Congressional ban on oil and gas production on the outer continental shelf and other federal lands would increase federal royalty collections as much as $2.6 trillion over the period of the additional production.
Senator Obama, Speaker Pelosi and others oppose production from those federal resources. So the windfall profit tax proposal at this juncture in Congress' summer recess is a ploy to change the subject -- promise another $500 bonus for individual voters paid for with a tax on oil.
Unfortunately, history repeats. The studies you remind everyone to read show not just that President Carter's windfall profits tax on oil and gas production caused less production in the U.S. and more investment in riskier foreign reserves, the studies show that the tax reduced investment in U.S. oil and gas production so much that it that it had caused a reduction in annual federal tax collections at the time that it was repealed. It took years to repeal it.
It is bad policy.
Best Regards,
Bill Archer
I'm still waiting for
I'm still waiting for someone to explain how the windfall profits tax caused oil firms to produce less old oil.
My memory of the tax is that there was nothing in the tax that would produce this result.
The WPT Did Not Cause Significant US Crude Production Declines
Bill Archer is right of course about the foregone tax revenues that would otherwise have been accruing from offshore production. I am surprised by the size of his number, but he may be right.
He is wrong about the Windfall Profit Tax. Here is a graph showing the long-term decline in US crude oil production:
http://www.eia.doe.gov/emeu/aer/pdf/pages/sec5_6.pdf
Show me where in the long decline there is a WPT-induced special superduper decline. It was the decline in world oil prices in the mid-80s that hastened the US crude production decline, not the imposition of the WPT. If Congressman Archer thinks the WPT was more important than the price decline as a cause of reduced crude oil production, he is mistaken.
policy pete-- very good
policy pete-- very good comments.
But note, the only time us oil production has actually increased since the all time peak in 1969 was during the period of the windfall profits tax.
If you look at the charts you presented you would have to conclude that it caused oil production to rise.
Your data suggest that we need a new WPT to induce higher output.
Why does our host continue to claim that the WPT caused oil output to fall when all the evidence suggest just the opposite.
Is he ignoring our comments just like he is ignoring the data?
I would like to hear an explanation.
Did the WPT cause US oil production to increase after 1980?
No. Of course not. The production increase after 1980 and until about 1985 came from vastly higher prices. After all, the price pre-1979 was about $12/bbl. And in the period in question it hit what up until then was a fearsome all time peak of around $40/bbl, and prices stayed pretty high until Zaki Yamani was removed as Saudi oil minister and oil prices fell through the floor in about 1985, where they more or less stayed until a new Saudi oil minister started to get to work post 1997.
But the point is that the WPT didn't hurt US oil production all that much from what it otherwise would have been. I don't claim that the WPT if enacted now would help domestic production, I just don't think it would hurt it much at all, even though it would cause a lot of hyper e&p activity to be cut back. Whatever risk there is of hurting domestic US crude production is far offset by the benefit of switching to an electrification strategy. Bring on the plug-in hybrids!
I want to know if Exxon
I want to know if Exxon would have to pay WPT on its sales outside the US, which currently account for 70% of its profits.
Also would WPT apply to foreign companies (PDVSA, Saudi Aramco, Lukoil)? (Not sure how it could, but then again I'm still not sure how this Guantanamo prisoner thing should be legal either ;)
Would the WPT tax Exxon's foreign profits?
It would depend on how the tax was designed. I would assume that both domestic and foreign crude production revenues would be included. My understanding is that the US, as opposed to almost all other countries, already taxes worldwide corporate income but allows a foreign tax credit for taxes actually paid to other countries.
The really interesting question is whether Aramco, Star Enterprise, Citgo, and other OPEC state enterprise corporations (that is, oil companies owned by foreign governments) that operate in the US would have to pay the WPT.
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