Washington – The stakes couldn’t be higher for captains of the oil industry today when they appear before a joint hearing of two U.S. Senate committees to answer questions about the highest corporate profits ever.
One question sure to get their attention: Why shouldn’t Congress impose a windfall-profits tax on them?
Beyond the expected theatrics at the joint hearing of the Senate’s energy and commerce committees, there’s a growing chance that Congress might target oil-industry profits.
That’s because on Oct. 27 Exxon Mobil Corp. reported the largest quarterly corporate net profit ever, $9.9 billion, up 75 percent from the same quarter in 2004. Royal Dutch Shell reported year-over-year profit growth of 68 percent; BP, 34 percent; Chevron Corp., 12 percent; and ConocoPhillips, 89 percent, to $3.8 billion.
These five companies, whose executives will testify today, reported combined quarterly profits of $32.8 billion. That’s $356 million per day for the 92-day third quarter. The money came from Americans paying record gasoline prices at the pump – more than $3 a gallon for a while, thanks to a tight global oil market and hurricanes that ravaged industry infrastructure in and around the Gulf of Mexico.
Today, gasoline prices are back to pre-hurricane levels, but winter home-heating costs are projected to soar by more than 60 percent in some parts of the nation. ap polls show that the rising cost of energy surpasses health care as the top concern of American families.
That’s why the heat is on the Republican-controlled Congress, which may find it necessary to go beyond a public mugging of the chief executives and actually take action.
House Speaker Dennis Hastert, R-Ill., recently warned that oil companies must do their part “to ease the pain” of Americans by using their record profits to build more refineries.
Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, wrote to oil executives urging them to donate 10 percent of their profits to a program that defrays home-heating costs for the poor and elderly.
Senate Budget Committee Chairman Judd Gregg, R-N.H., proposed a windfall-profits tax to help the poor and elderly this winter. In a statement, he said, “I cannot sit back in good conscience while those in our society struggling to heat their homes are being left in the cold by oil companies.”
Today’s hearings, the first of their kind in decades, came after Senate Majority Leader Bill Frist, R-Tenn., contemplating a 2008 run at the presidency, said oil-company executives should explain their record profits amid an energy squeeze on average Americans.
And that’s just the Republicans.
Sen. Hillary Clinton, D-N.Y., proposes an “alternative development energy fee” of up to $20 billion annually on oil profits. Sen. Byron Dorgan, D-N.D., proposes a 50 percent excise tax on oil profits when the price of crude oil goes above $40 a barrel on global markets. His tax would return oil-industry profits to consumers in the form of a rebate.
Testimony from the oil-company executives may be key to avoiding a windfall-profits tax.
“If they don’t come across as sympathetic to the plight of the consumer, there are going to be more incentives for the Congress to say, ‘This is too much, and I’ve got to do something,”‘ said Frank Verrastro, director of energy programs for the Center for Strategic and International Studies, a conservative think tank in Washington.
President Carter proposed a windfall-profits tax on the oil sector in 1979 as a trade-off for deregulating energy prices. Congress enacted a compromise in 1980. The tax ranged from 30 percent to 70 percent, depending on crude-oil prices, until President Reagan scrapped windfall-profits taxes amid low global crude prices.
The windfall-profits tax was levied only on established oil production. New domestic production in the Gulf of Mexico and elsewhere was taxed at a more favorable rate to provide oil companies an incentive to find more oil. The two-tiered tax system proved hard to enforce.
What to do with record profits
Congressional proposals in reaction to record oil-company profits in the third quarter:
Sen. Charles Grassley, R-Iowa: Donate 10 percent of profits to defray heating costs for poor and elderly
House Speaker Dennis Hastert, R-Ill.: Use record profits to build more refineries
Sen. Hillary Rodham Clinton, D-N.Y.: Impose an “alternative development energy fee” of up to $20 billion annually on oil profits
Sen. Byron Dorgan, D-N.D.: Impose a 50 percent excise tax on oil profits, rebated to consumers, when crude oil goes above $40 a barrel on global markets
